Mitch has $700 in his checking account that is earning 12% interest, compounded annually. How much compound interest to the nearest rounded 100th will he earn in 1 year and what will be the new amount of his checking account?

There are two basic forms of interest - simple interest and compound interest.   The formula to calculate simple interest is I = PRT (interest equals principal, interest rate and time).  In essence, when you receive simple interest you only earn or pay interest on the principal balance.   With compound interest you not only earn interest on the principal balance but you also earn interest on the interest earnings.  In order to calculate compound interest we have a new formula to follow.  It is: A = P(1 + r)t.  A = The amount of money (including the accrued interest) after __ years/months... Show more

There are two basic forms of interest - simple interest and compound interest.  

The formula to calculate simple interest is I = PRT (interest equals principal, interest rate and time).  In essence, when you receive simple interest you only earn or pay interest on the principal balance.  

With compound interest you not only earn interest on the principal balance but you also earn interest on the interest earnings.  In order to calculate compound interest we have a new formula to follow.  It is: A = P(1 + r)t. 

A = The amount of money (including the accrued interest) after __ years/months or the compound amount
P = The principal saved or owed

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