Compound Interest Earned

The Compounded Interest Earned calculator computes the interest earned from applying compounded interest to an initial investment, initial principal (p) for some period of time.

INSTRUCTIONS: Choose your preferred units and enter the following:

• (P) the present value or principal 
• (I) the % interest rate per period (e.g. 4.5% per year)
• (n) the number of periods over which the interest occurs 
• (q) the number of times the interest is compounded period per period (e.g. 12 for monthly) 

The Compounded Interest Earned is computed and returned in U.S. dollars.  However this can be automatically converted to other currency units via the pull-down menu.

USE

One use of this equation would be to compute the dollars earned for two or more investment options.  For the investor who's looking at different options for investing a sum of money, this equation enables him/her to:

• compare the amount of money earned at different interest rates
• compare the amount of money earned over different periods
• compare the amount of money earned on different principal investments

EXAMPLE 1:

An investor could be comparing a potential yield of a mutual fund whose previous earnings experience was 7.5 % to a fixed interest Certificate of Deposit (CD) at a lower rate of 1.8%.  While the risk of the mutual fund is obviously much greater than the CD, the predicted earnings of the mutual fund are likewise greater than the CD.   The investor would like to see the difference in the amount earned to make a decision if the potential additional earnings are worth the perceived risk.  This equation could then be used to compute the interest that will be earned by the CD and by the mutual fund over the same period.

EXAMPLE 2:

An investor is doing some planning for an upcoming vacation.  The investor is tentatively planning to take a vacation in two years and wants to see how much more interest he will have earned in his savings account if he waits one more year.  He uses this equation to compute the interest after two years and threes years to make the comparison.