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.
Einstein allegedly called compound interest 'the eighth wonder of the world' because it demonstrates the incredible power of exponential growth! A penny doubled every day for a month becomes over $5 million - it's mathematical proof that time and patience can create wealth.
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