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1. Compound Interest An Introduction

2. What is Compound Interest? • Compound interest is the interest calculated on the initial principal, which also includes all accumulated interest from previous periods. • Unlike simple interest, compound interest grows faster because it is calculated on both the principal and accumulated interest.

3. Compound Interest Formula A = P (1 + r/n)^(nt) Where: • A = Future Value (Maturity Value) • P = Principal Amount • r = Annual Interest Rate (in decimal) • n = Number of times interest is compounded per year • t = Time (in years)

4. Example Problem Suppose you invest ₱10,000 at an annual interest rate of 5%, compounded annually for 3 years. Solution: A = 10,000 (1 + 0.05/1)^(1×3) A = 10,000 (1.05)^3 A = ₱11,576.25

5. Applications of Compound Interest • Bank savings accounts • Investments (stocks, bonds, mutual funds) • Loans and mortgages • Credit card balances

6. Key Takeaways • Compound interest helps money grow faster than simple interest. • The frequency of compounding affects the growth of money. • The longer the time, the greater the accumulated amount. • Understanding compound interest is important for saving, investing, and borrowing.