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Finance Formulas / July 19, 2018 / Kenley Hopper

Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics.

If you have credit cards or bank loans for your home, you pay interest (or a finance charge) on that money at a specific percentage over the course of the year. This is called APR, or annual percentage rate. Calculating your APR on your credit cards takes only a few minutes if you know some key factors and a little algebra. The APR on mortgage loans, however, is different from the simple interest rate because of additional charges or fees to you for securing your loan.

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