How do you compute interest upon interest?

Interest upon Interest is the interest earned when interest payments are reinvested. It is also known as Compound Interest. It grows at a faster rate than simple interest. Formula to calculate Interest upon Interest or Compound Interest is as follows:

Compound Interest (I) = (P*(1+r)^n)-P

Here,

P = Principal

r = Interest Rate

n = Number of Compounding Periods

For Example:

Assume You have taken a loan of $5,000 at 5% interest rate compounded annually for 5 Years.

So,

Principal = $5,000

Interest Rate = 5%

Number of Compounding Periods = 5 Years

Compound Interest = ($5,000*(1+5%)^5) - $5,000

= $6,381 - $5,000

Compound Interest = $1,381