Compound Interest

# Compound Interest

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• Compound Interest
• Summary
• What’s Next?

In the previous segment, we had a look at the examples of simple interest. In this segment

of the chapter ‘Comparing Quantities’, we will learn about compound interest.

## What is Compound Interest?

Compound interest is the interest calculated on the principal and the interest accumulated over the previous period.

In simple interest, interest is only calculated on the original principal, while in the compound interest the interest is calculated on both the principal and the accumulated interest of the prior periods.

For instance, consider a man deposits ₹ 100 at a bank for 2 years at an interest rate of 5%. At the end of the first year, the amount obtained by the person will be ₹ 105 and the second year it will be ₹ 110. This is an example of simple interest as the interest was calculated on the principal only.

But in compound interest, for the second year, the interest will be calculated on both principal and accumulated interest of the first year that is on ₹ 105.

## Summary

 Compound Interest Compound interest is the interest calculated on the principal and the interest accumulated over the previous period.

What’s next?

In our next segment of Class 07 Maths, we will have a look at Rational Numbers.

## Related content

 Computing Simple Interest Simple Interest – Example 1