Compound interest can be defined as the interest a lender gets from both his initial principal and the interest he has gotten before from its initial money. It is known as interest on interest. For example, a shareholder who has $100,000 worth of share and is entitled to 2% yearly will have a total sum of $102,000 on the first year. In the second year, the total will be $104,040 because he will receive $2,000 from the $100,000 and also $40, which is 2% of $2,000, making it a total of $104,040.
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