Interest calculated on both the initial principal amount and the accumulated interest from previous periods, causing money to grow exponentially over time. The interest 'compounds' by earning interest on interest.
From Latin 'componere' meaning 'to put together' and 'interesse' meaning 'to be between' or 'to concern'. The mathematical treatment of compound interest was developed in medieval Italy by merchants and bankers, with formal formulas appearing in 16th-century mathematical texts.
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