Compounding Calculator

How the calculation works

Compound growth assumes returns are reinvested so each period earns on both principal and prior gains. With annual rate r, compounding frequency n, and time t years, future value is PV × (1 + r/n)^(n×t). Total growth is future value minus the starting principal. Negative rates model decay the same way.

Formula & example

FV = PV × (1 + r/n)^(n×t)

$10,000 at 12% compounded monthly for 5 years → FV ≈ $18,167.

Why use this calculator

Linear intuition understates long-horizon growth and overstates short-horizon trading “compounding.” The formula makes the sensitivity to rate, time, and compounding frequency explicit.

When to use it

Use for educational projections of smooth investment growth, or to illustrate how rate and time interact — not as a forecast of discretionary trading equity.

Background

Compound interest was known in antiquity; Leonardo of Pisa (Fibonacci) discussed related calculations in Liber Abaci (1202), helping spread commercial arithmetic in medieval Europe. The continuous-compounding limit e^(rt) later became central to modern finance mathematics.

Tips for accurate results

• Trading returns are lumpy; treat this as a planning sketch.
• Negative rates model decay.

FAQ