Enter the initial principal, annual interest rate, and time into the calculator to determine the final principal after growth due to interest.
Principal Growth Formula
The following formula is used to calculate the final principal after interest growth.
FP = P * (1 + r)^t
Variables:
- FP is the final principal ($)
- P is the initial principal ($)
- r is the annual interest rate (expressed as a decimal)
- t is the time the money is invested or borrowed for (years)
To calculate the final principal, multiply the initial principal by one plus the annual interest rate raised to the power of the number of years the money is invested or borrowed for.
What is Principal Growth?
Principal growth refers to the increase in the initial amount of money invested or borrowed due to the accumulation of interest over time. This concept is fundamental in finance and is used to understand how investments grow and how the cost of borrowing can increase over time. It is particularly important for long-term financial planning and investment strategies.
How to Calculate Principal Growth?
The following steps outline how to calculate the Principal Growth.
- First, determine the initial principal (P) in dollars.
- Next, determine the annual interest rate (r) as a percentage.
- Next, convert the annual interest rate to a decimal by dividing by 100.
- Next, determine the time (t) the money is invested or borrowed for in years.
- Next, gather the formula from above = FP = P * (1 + r)^t.
- Finally, calculate the Final Principal (FP) in dollars.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Initial principal (P) = $1000
Annual interest rate (r) = 5%
Time (t) = 10 years
