Answer:
Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. Thought to have originated in 17th century Italy, compound interest can be thought of as "interest on interest," and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.
The first way to calculate compound interest is to multiply each year's new balance by the interest rate. Suppose you deposit $1,000 into a savings account with a 5% interest rate that compounds annually, and you want to calculate the balance in five years. In Microsoft Excel, enter "Year" into cell A1 and "Balance" into cell B1. Enter years 0 to 5 into cells A2 through A7. The balance for year 0 is $1,000, so you would enter "1000" into cell B2. Next, enter "=B2*1.05" into cell B3. Then enter "=B3*1.05" into cell B4 and continue to do this until you get to cell B7. In cell B7, the calculation is "=B6*1.05". Finally, the calculate.