When the interest is calculated for every period on the total previous amount, then the total amount of interest gained on all the periods is called compound interest.

Let Principal = P

Rate of interest = r

No. of years = *n*

After 1st year, interest

After 1st year, Amount

Now principal becomes,

Principal

After 2nd year, interest

After 2nd year, Amount

and so on.

Amount after n-years is

Hence