Banking Exam Question - What is Compound Interest & Half-Yearly Compound Interest? How to Calculate & Important Formulas of Compound Interest.

Introduction - Compound Interest & Half-Yearly Compound Interest

Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.

How to calculate compound interest?

• Calculate Accrued Amount (Principal + Interest) A = P(1 + r/n)^nt
• Calculate Principal Amount, solve for P. P = A / (1 + r/n)^nt 
• Calculate rate of interest in decimal, solve for r. r = n[(A/P)^1/nt - 1] 
• Calculate rate of interest in percent. R = r * 100.Calculate time, solve for t.

How to calculate half-yearly compound interest?

Rate Compounded Annually or Half yearly. The time period after which the interest is added each time to form a new principal is called the conversion period. When the interest is compounded half yearly, there are 2 conversion period in a year each after 6 months.

Find Compound Interest when interest is compounded Half yearly. To find compound interest when interest is compounded half yearly, we use the following formula. A = P ( 1 + r/2) ²ⁿ and C.I = A - P where, P = principal. R = rate in percent p.a.( per annum i.e. annually) n = number of years.