Compound Interest is money you can earn when you investing the principal over a period of time. It adds any interest rate on the interest earned on the principal amount.
Let us understand it from a simple example:
Assume that you invest Rs100 for 2 year @ 10% interest. Then Compound Interest would be
Today = Rs100
After 1 year = P*R*T/100
= 100*1*10/100= Rs10
Total Amount after 1 year = Rs100+ Rs10 = Rs110
Interest between 1-2 years = P’*R*T = 110*1*10/100 = Rs11
Therefore, Total amount after 2 years = Rs110+Rs11 = Rs121
Amount= P(1+r/100)^t where P is principal, r is the rate of interest and t is investment tenure.
Compound Interest = Amount-Principal