1. What is Compound Interest?

Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. It allows investments to grow at a faster rate than simple interest, where interest is calculated only on the principal amount.

2. How to Calculate on iPhone Calculator

To calculate compound interest on an iPhone calculator:

1. Enter the principal amount
2. Add 1 to the interest rate divided by compounding frequency
3. Raise the result to the power of (frequency × time)
4. Multiply by the principal amount

3. Understanding the Formula

Where:

• \( A \) — Maturity amount ($)
• \( P \) — Principal amount ($)
• \( R \) — Annual interest rate (decimal)
• \( n \) — Compounding frequency per year
• \( T \) — Time period (years)

Explanation: The formula calculates how much an investment will grow when interest is compounded at regular intervals.

4. Using the Calculator

Tips: Enter principal amount in dollars, annual interest rate as a percentage, select compounding frequency, and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding (daily vs. annually) results in higher returns due to interest being calculated more often.

Q3: Can I use this for loans and debts?
A: Yes, the same formula applies to compound interest on loans and credit card debts.

Q4: What's the Rule of 72?
A: A quick way to estimate how long it takes for an investment to double: 72 divided by the annual interest rate.

Q5: Are there limitations to this calculation?
A: This assumes a fixed interest rate and regular compounding periods. Real-world scenarios may have variable rates or irregular contributions.