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There is a quick way to convert simple interest to compound interest. First you need to know how long it will take to double your initial number.
For Example:
Let's say that you find an investment that pays 10% simple interest. That means it takes 10 years to double your investment. We then use the rule of 72 to determine the rate of compound return will give an equivalent time.
The rule of 72 says that you divide either the rate of return or the time period into 72 to come up with the other. So, in this example we want to know what interest rate would double our money in 10 years.
divide 72 by 10: 72/10 = 7.2
This means that 7.2% compound interest is equal to 10% simple interest.
now formula:
Let say
Principal after year for compound interest
=
So, effective rate (compound interest rate) for years
=
=
effective rate (compound interest rate) per year
=
