Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. It grows at an exponential rate, unlike simple interest which grows linearly.
5 Must Know Facts For Your Next Test
Compound interest can be modeled using the exponential function $A = P e^{rt}$, where $P$ is the principal amount, $r$ is the annual interest rate, and $t$ is time in years.
The formula for compound interest with different compounding intervals is $A = P (1 + \frac{r}{n})^{nt}$, where $n$ is the number of times interest is compounded per year.
Continuous compounding can be represented as $A = Pe^{rt}$, taking the limit as $n$ approaches infinity.
In integration applications, you might need to integrate functions involving compound interest over a certain period to find total growth or decay.
The effective annual rate (EAR) can be calculated using compound interest to compare different compounding intervals.