# Compound Interest when Interest is Compounded Yearly – Definition, Formula, Examples | How to Calculate Compound Interest Annually?

Usually, compound interest is calculated at intervals of yearly(annually), half-yearly(semi-annually), quarterly, monthly, etc. Compound interest is the same as reinvesting the interest amount from the investment that makes the money grow very fast over time. All the financial organizations or banks calculate the amount of money based on compound interest. Check the 10th Grade Math articles to know the compound interest when Interest is compounded yearly along with formulae, definition, derivations, etc.

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## Compound Interest Yearly – Definition

### Compound Interest Compounded Annually Examples

Here we have given different problems with tricks and steps. Solve all the problems and get a grip on the concept.

Example 1:
The count of chocolates made in a factory was found to increase at the rate of 2% per hour. Find the chocolates at the end of 2 hours if the initial count was 5,00,000?

Solution:
Given that the chocolates count increases at the rate of 2% per hour.
We use the formula, Amount A = P{(1 + $$\frac { r }{ 100 }$$)n}
Hence, the choclates at the end of 2 hours = 5,00,000(1 + 2/100)2
= 5,00,000(1 + 0.02)2
= 5,00,000(1.02)2
= 5,20,200

Therefore, the number of chocolates after 2 hours is 5,20,200.

Example 2:
The sum of Rs. 20,000 is borrowed by Aakash for 2 years at the interest rate of 10% compounded annually. Find the compound interest and amount to pay at the end of 2 years?

Solution:
Given that, Principal amount = Rs. 20,000, Rate = 10% and Time = 2 years.
We can calculate the amount by using the formula, A = P{(1 + $$\frac { r }{ 100 }$$)n}
Substituing the values in the above equation,
A= 20,000(1 + 10/100)2
A = 20,000(11/10)(11/10)
A = 24,200
Therefore, the amount to pay at the end of 2 years = Rs. 24,200
Compound Interest for 2nd year = A – P
= 24,200 – 20,000
= 4,200

Therefore, the compound interest = 4,200.

Example 3:
What is the compound interest on Rs.3000 for 3 years at 10% per annum compounded annually?

Solution:
Given that, Principal amount = Rs. 3000, Time (T) = 3 years, Rate(R) = 10%
We use the formula, A = P{(1 + $$\frac { r }{ 100 }$$)n}
A = 3000(1 + 10/100)3
A = 3000(1 + 0.1)3
A = 3000(1.1)3
A = 3990
Interest for the second year = A – P
= 3990 – 3000
= 990

See More: Practice Test on Compound Interest

### FAQs on Compound Interest Annually

1. Are compounded annually and compound interest the same?

Compound interest can be calculated by multiplying the principal amount by 1 plus the raised annual interest rate to the compound period’s number minus 1. Compounded annually refers to the given frequency schedule which varies from continuous to daily to annually.

2. What will be the formula for compound interest is compounded annually?

If the principal amount is compounded annually, the final amount after the given time period at the rate of interest percent is A = P(1 + R/100)t and Compound Interest will be A = P(1 + R/100)t – P.

3. Who benefits from compound interest?

Mostly the investors get benefit from the compound interest as it is the reinvesting of the amount which helps in growing the money fast over time.

4. What is Rule 72 and why do they call it Rule 72?

The actual years are calculated from a logarithmic calculation which is not possible without the help of a calculator with logarithmic capabilities. Hence, the rule of 72 exists. It helps in letting know the time period it takes to double without the help of a physical calculator.