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Compound Interest Definition

compound interest – n: finance/accounting term; in the case of a loan or bond where interest accrues but is not paid, the interest accrued is added to the principal amount of the loan or bond. This increases the principal amount, and interest now accrues on the new higher amount. Simply put, compound interest is interest you pay on interest you have been charged. For the startup manager, you may see this concept in the form of compounding dividends on preferred stock that has a set dividend rate.

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Adapted from "The CompanyCrafters Entrepreneur's Dictionary"
Copyright © 2004-2006 CompanyCrafters LLC

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