Maya owes $104,000 to a credit card company. The debt grows with 12% annual interest that compounds every month. How much will Maya owe in three years?

Discussing interest starts with the principal, or amount your account starts with. This could be a starting investment, or the starting amount of a loan. Interest, in its most simple form, is calculated as a percent of the principal. For example, if you borrowed $100 from a friend and agree to repay it with 5% interest, then the amount of interest you would pay would just be 5% of 100: $100(0.05) = $5. The total amount you would repay would be $105, the original principal plus the interest.

Simple One-time Interest

I = P0r

A = P0 + I = P0 + P0r = P0(1 + r)