compound interest (redirected from Annual Equivalent Rate (or AER) as used in the UK)

compound interest

n.

Interest computed on the accumulated unpaid interest as well as on the original principal.

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compound interest

n

(Economics, Accounting & Finance / Banking & Finance) interest calculated on both the principal and its accrued interest Compare simple interest

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compound interest

Interest computed on the original principal plus any accrued interest. Thus if 5% is the rate of interest per year and the principal is $1000, the compound amount after one year will be $1050, after two years it will be $1050 × 0.05 = $1102.50, after three years it will be $1102.50 × 0.05 = $1157.63, and so forth. Mathematically, if P is the original principal and I the rate of interest expressed as a decimal, the compound amount at the end of the nth year will be P(1 + I)ⁿ. The growth of the compound amount is exponential and not linear. Compare simple interest.

Thesaurus

Noun

1.

compound interest - interest calculated on both the principal and the accrued interest interest - a fixed charge for borrowing money; usually a percentage of the amount borrowed; "how much interest do you pay on your mortgage?"

Translations

compound interest n → interesse m composto