Introduction to Python

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Compute the Compound Interest

Write a function with name compound_interest that takes three arguments: principle, rate and years in order. the rate is float and years is an integer. The function signature should look like the following. This function should return the compounded interest a float value.

def compound_interest(principle, rate, years):
    # This is where you code go.
    # compute comp_interest
    return comp_interest

How to calculate compounded interest?

The simple interest is calculated as principle * rate * years / 100.

If you calculate simple interest on principle every year and add the interest to principle, the result will the principle for next year. This is how you calculate the compounded interest.

Let us take a case of principle = 100, rate = 5 (percent per year) and years = 2 (years) i.e. compound_interest(100, 5, 2):

  • At the end of first year, interest = 10051/100 = 5
  • New priciple for second year = 100 + 5.
  • At the end of second year, interest = 10551/100 = 5.25
  • The total accumulated value: 105 + 5.25 = 110.25
  • The net compounded interest in 2 years is 110.25 - 100 = 10.25
  • Your function compound_interest should return this net compounded interest.

Please use the iterative approach as mentioned above instead of direct formulae to calculate the compounded interest.