ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -With compound interest, the interest per period is based on the principal balance plus any outstanding interest already accrued. Interest compounds over time. When calculating compound interest, the number of compounding periods makes a significant difference.

Detailed explanation-2: -Compound interest applies the interest rate to both the principal balance and accrued interest. In other words, it charges interest on interest. With a loan, compound interest can lead to paying more interest over time. For example, a credit card may use daily compounding interest if you’re carrying a balance.

Detailed explanation-3: -Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Detailed explanation-4: -The calculation of interest on the interest of principal amount is called Compoundinterest. Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.

Detailed explanation-5: -Compound interest is calculated on the principal amount and the accumulated interest of previous periods, and thus can be regarded as “interest on interest.”