Compound Interest
Compound Interest
Formula
One very important application of exponential functions is compound interest. Below is the formula:
A is the ending amount
P is the beginning amount (or "principal")
r is the interest rate (expressed as a decimal)
n is the number of times the loan is compounded in one year
t is the total number of years
*Note: The formula is set up this way because interest rates are generally reported as annual interest rates.