**COMPOUND INTEREST **If the borrower and the lender agree to fix up a certain interval of time (say, a year or a half year or a quarter of a year etc) so that the amount (= Principal + Interest) at the end of an interval becomes the principal for the next interval, then the total interest over all the intervals, calculated in this thay is called the compound interest and is abbreviated as C.I.

Clearly, compound interest at the end of certain specified period is equal to the difference between the amount at the end of the period and the original principal i.e.

**C.I. = Amount – Principal**

**CONVERSION PERIOD** : The fixed interval of time at the end of which the interest is calculated and added to the principal at the beginning of the interval is called the conversion period.

In other words, the period at the end of which the interest is compounded is called the conversion period.

When the interest is calculated and added to the principal every six months, the conversion period is six months. Similarly, the conversion period is 3 months when the interest is calculated and added quarterly.