One formula for calculating yearly compound interest is M=P(1+i)n. "M" represents the final amount with the principal and interest combined, "P" represents the principal amount, "i" represents the interest rate, and "n" is the number of years invested.
There are different formulas for calculating compound interest, and the formula being used depends on how often interest is compounded. It is known as compounded interest because as interest is added to the principal, the interest is then paid on the new amount. In contrast, the interest does not add to the principal with simple interest. Compound interest is much more commonly used.