How to calculate compound interest

Remember that compound interest is interest that is added to the principal amount at the end of each period.

The formula to calculate compound interest:

compound interest formula

Where:

FV = Future value

PV = Present value

i = Effective interest rate

n = Number of periods

The grade 12 CAPS syllabus requires learners to do this calculation year by year. This is simple using the Sharp EL-535.

Example

If you invest R 25 000 over 2 years at an interest rate of 9,5% what is the future value of this investment?

Press first key sequence

Press second key sequence

You have now stored the necessary variables into the calculator.

To calculate the FV after year one:

Press third key sequence

Press which will mean A is the PV for year two.

To calculate the FV after year two:

Press fifth key sequence

So your FV after 2 years = R 29 975.63