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You now have $300 and aim to treble it in five years. An interest rate of 24.57 should be obtained if interest is compounded annually.
The powerful investing principle of compounding entails generating returns on both your initial investment and returns you have already received. You must reinvest your returns back into your account for compounding to take effect. Consider an investment of $1,000 that yields a 6% return.
The amount of the initial loan, or principal, is multiplied by one, and the annual interest rate is raised to the number of compound periods minus one. You will then be left with the principal amount of the loan plus compound interest.
The compound interest formula is used to calculate compound interest, sometimes known as "interest on interest".
[tex]A = P(1 + \frac{r}{n})^{nt}[/tex]
Where r is the interest rate, P is the principal balance, n is the number of times interest is compounded per time period, and t is the total number of time periods, which is the formula for compound interest.
Future value = present value × [tex](1+ rate)^{time}[/tex]
3 = 1 × [tex](1 +\frac{IR}{100})^{5}[/tex]
Interest rate % = 24.57
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