A loan of $50,000 is taken out for six years at 9% interest compounded annually. If the loan is paid off in full at the end of that time period, $50433 must be returned.
<h3>What is Compound interest?</h3>
Compound interest is calculated by multiplying the initial loan amount, or principal, by one plus the annual interest rate multiplied by the number of compound periods multiplied by one.
Compound interest is when you earn interest on both your savings and your interest earnings. When you compound interest, you add the interest you've earned back into your principal balance, which earns you even more interest, compounding your returns.
Assume you have $1,000 in a savings account earning 5% interest per year. You'd earn $50 in year one, giving you a new balance of $1,050. Compound interest occurs when interest earned on savings begins to earn interest on itself.
