The charges that are imposed on the amount that one borrows or lends is known as interest. The Accumulated interest is also known as compound interest. Calculating this Interest helps in knowing that how much extra funds you will have, if the interest is being paid to you and how much expense you will incur, if you have to pay.
How to calculate Accumulated Interest?
In order to calculate Accumulated Interest, you need to know the time period for which the interest accumulates, the rate of accumulation and the number of times the interest accumulates per year. Accumulated Interest means the difference between the future value and the present value. So the formula will be as follows:
= P [(1 + i)n – 1]
Where P stands for Principal amount, i stands for annual rate of interest and n stands for the number of accounting periods.
For instance:
The Accumulated interest on INR 10,000 accumulated annually for 10 years at 10% would be INR (25,937.42 - 10,000) i.e. INR 15,937.42
Importance of Accumulated Interest
Accumulated Interest can help in significantly boosting the return on investment over the long term. While on one hand, INR 1,00,000 would receive only INR 50,000 simple interest at 5% p.a. Over 10 years, the same amount would receive INR 62, 889.46 over the same number of years.
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