t - Numbers of years the money is invested for.įrom a formal point of view, if the interest is compounded once per year (so m = 1), then r is called the compound annual growth rate (CAGR).Īs we have already explained in the introduction, CAGR is an acronym for compound annual growth rate.m - Number of times the interest is compounded per year (compounding frequency) and.
The formula for compound interest is quite complex as it includes not only the annual interest rate and the number of years but also the number of times the interest is compounded per year. Note here that a deposit or loan grows at a faster rate thanks to compounding. In other words, compound interest is the interest calculated on the initial principal as well as the interest which has accumulated during consecutive periods.
In finance, compound interest is defined as interest that is earned not only on the initial amount invested but also on any interest. To understand the idea of the compound annual growth rate, first of all, you should know what compound interest is.
