Principal and Interest Compound Interest Example Consider an account that pays interest at a rate of r per year.If interest is compounded yearly,then after 1 year,the first year's interest is added to the original principal to define a larger principal base for the second year. What is the account value after n years? The account earns interest on interest! Under yearly compounding,after n years,such an account will grow to V=(1+r)A. This is the analytic expression for the account growth under compound interest.This expression is said to exhibit geometric growth because of its nth-power form. 0Q0 Xi CHEN (chenxi01090bfsu.edu.cn) Investment Science 6/174Principal and Interest Compound Interest Example Consider an account that pays interest at a rate of r per year. If interest is compounded yearly, then after 1 year, the first year’s interest is added to the original principal to define a larger principal base for the second year. What is the account value after n years? The account earns interest on interest! Under yearly compounding, after n years, such an account will grow to V = (1 + r) nA. This is the analytic expression for the account growth under compound interest. This expression is said to exhibit geometric growth because of its nth-power form. Xi CHEN (chenxi0109@bfsu.edu.cn) Investment Science 6 / 174