Today, I am going to share with you what most finance courses out there, dont teach you.

The Mechanics Behind The Formula Of Compound Interest!

In one of my previous blog post, I have shared on how to calculate compound interest, without using a financial calculator.

This is the formula again.

Principal (1+interest)^{number of years}

In this blog post, I am going to share with you the mechanics behind the formula of compound interest for a single cashflow. Before that, let me give you an example, on how compound interest works.

Example, you have $10,000 today, and you earn 9% compounded interest, annually.

For the first year, you earn 9% X $10,000 = $900 interest

On the second year, you will earn an additional 9% X ($10,000 +$900) = $981 interest

You earn interest, not just on the principal…but you earn interest on the (principal + interest)

So ...