Compound Interest/Examples

Examples of Compound Interest

Arbitrary Example

Let $\pounds 1000$ be invested for $2$ years at $8 \%$ per annum.

Let interest be compounded half-yearly.

At the end of the $1$st $6$ months, the compound interest will be:

$I_1 = \dfrac 8 {100} \times \dfrac 1 2 \times \pounds 1000 = \pounds 40$

At the end of the $2$nd $6$ months, the compound interest will be:

$I_2 = \dfrac 8 {100} \times \dfrac 1 2 \times \pounds 1040 = \pounds 41 \cdotp 60$

At the end of the $3$rd $6$ months, the compound interest will be:

$I_3 = \dfrac 8 {100} \times \dfrac 1 2 \times \pounds 1081 \cdotp 60 = \pounds 43 \cdotp 26$

At the end of the $4$th $6$ months, the compound interest will be:

$I_4 = \dfrac 8 {100} \times \dfrac 1 2 \times \pounds 1124 \cdotp 86 = \pounds 44 \cdotp 99$

Hence the total interest earned will be $\pounds 169 \cdotp 85$.