1. What is the Compound Interest Formula?

The compound interest formula calculates the future value of an investment or loan based on the principal amount, interest rate, and time period. It accounts for interest earned on both the initial principal and accumulated interest.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( Principal \) — Initial amount invested or borrowed ($)
• \( r \) — Interest rate (unitless, e.g., 0.05 for 5%)
• \( t \) — Time period in years

Explanation: The formula calculates how much an investment grows over time when interest is compounded annually.

3. Importance of End Balance Calculation

Details: Calculating end balance is crucial for financial planning, investment analysis, loan repayment calculations, and retirement planning to understand how money grows over time.

4. Using the Calculator

Tips: Enter principal amount in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be valid (principal > 0, rate ≥ 0, time ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.

Q2: How does compounding frequency affect the result?
A: More frequent compounding (monthly, quarterly) yields higher returns. This calculator assumes annual compounding.

Q3: Can this calculator be used for loans?
A: Yes, it can calculate the total amount owed on a loan with compound interest.

Q4: What if I have monthly contributions?
A: This calculator only handles lump sum investments. For regular contributions, a different formula is needed.

Q5: How accurate is this calculation for real-world investments?
A: It provides a theoretical estimate. Real-world returns may vary due to fees, taxes, and fluctuating rates.