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Compound Interest Formula Compound interest is calculated by finding the total amount accumulated over a period of time, based on the initial principal, the rate of interest, and the frequency of compounding. Therefore, a more complete version of the compound interest formula is: A = P (1 + r / n) nt. When using the formula A = P (1 + r/n) nt, keep in mind that the interest can be compounded daily, quarterly, triannually, semi-annually, twelve times a year (monthly), etc... Example #2. Let us modify example #1 a little bit! Compound interest formula is mentioned and explained here along with a solved example. To recall, compound interest can be defined as “An interest on interest to the principal sum of a loan or deposit.” Compound interest is defined as the interest incurred on a loan or deposit amount of money. It is a familiar concept applied in day-to-day life. The compound interest for the deposit sum is dependent on both the Principal amount and Interest obtained over a period of time.
