Answer
The compound amount is the sum of the original principal and the total accumulated interest. The interest is the difference between the compound amount and the original principal.
Work Step by Step
The compound amount is the sum of the original principal and the total accumulated interest. The interest is the difference between the compound amount and the original principal.
For example, if a principal of $\$1000$ has an interest rate of 10% and is compounded over two years, then the compound amount is found thus:
We use the interest formula (P=1000, r=0.1, t=1):
$I=Prt$
And apply it to each of the 2 years, adding the previous year's interest to the principal each time.
Year 1: $I=1000*0.10*1=100$
Year 2: $I=(1000+100)*0.10*1=110$
Thus the total compound amount is:
$1000+100+110=\$1210$
The total interest is:
$100+110=\$210$
