Step 6. To find the compound interest, we determine the difference between the future value and the present

value of the principal. This is accomplished as follows:

Step 7. Apply this formula to our three-year scenario. Follow the calculations in

Table 17.4

Year 1

Amount in Bank

Bank Interest Rate

Total

$100

5%

$105

$100 + ($100 × 0.05)

Year 2

Amount in Bank

Bank Interest Rate

Total

TABLE 17.4

$105

5%

$110.25

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17.3 • How to Accumulate Personal Wealth 427

$105 + ($105 × .05)

Year 3

Amount in Bank

$110.25

Bank Interest Rate

5%

Total

$115.75

$110.25 + ($110.25 × .05)

Compound interest

$115.76 – $100 = $15.76

TABLE 17.4

Step 8. Note that, after three years, the total is $115.76. Therefore the total compound interest is $15.76. This is

$0.76 more than we obtained with simple interest. While this may not seem like much, keep in mind that we
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