$4000 principal earning 6% compounded annually. what will the balance be after 6 years

Compound Interest is calculated on the initial Principal for a given unit of time(yearly, half-yearly, quarterly), it also includes all of the accumulated interests of the previous period of a loan or deposit.

In this type of interest, the amount after the first unit time becomes the principal for the second unit and the amount after second unit time becomes the principal for the third unit and so on.

So the difference between the final amount and the principal is called Compound interest.

If the interest is compounded yearly:-

A=P(1+R100)n

Here A = final Amount

P = Principal

R = interest rate

n = time period

Compound interest = Final amount - principal

Given:-

Principal (P) = $4000

Interest Rate (R) = 6%

Time period (n) = 5 years