How do you calculate compound interest in personal finance?

Compound interest is a powerful tool that can help your money grow exponentially over time. To calculate compound interest in personal finance, you need to know three things: the principal amount, the interest rate, and the time period over which the interest will be compounded.

The formula for calculating compound interest is:

A = P(1 + r/n)^(nt)

Where:

• A = the final amount, including interest
• P = the principal amount
• r = the annual interest rate (as a decimal)
• n = the number of times the interest is compounded per year
• t = the time (in years) the money is invested

Let's say you invest $1,000 at an annual interest rate of 5%, compounded quarterly (four times per year) for three years. Using the formula above, you can calculate the final amount:

A = $1,000(1 + 0.05/4)^(4*3)

A = $1,000(1.0125)^12

A = $1,164.14

So, after three years of compound interest, your investment would be worth $1,164.14.