A short view into a fascinating equation, a principle, and its application to everyday life.

Equations are a way of understanding and explaining the world around us. They range from simple and easy to understand, to very complex that are on average almost impossible to understand. But they help us in daily life to achieve great things in science, economics and elsewhere. However, an equation that recently caught my attention is the compound interest equation, which is why I'd like to make a case for it being the most important in history.

Business Insider came up with a list of 17 Equations That Changed The Course Of History. These 17 equations range from the simplest, such as the Pythagoras's Theorem, Logarithms to the more complex such as the Fourier Transform of the Black-Scholes Equation. The most famous one, of course, being Einstein's Relativity equation.

However, the equation we really should pay attention to is the compound interest equation. Even Einstein famously said that the compound interest equation is the most powerful force in the Universe. He went as far as to say that it's the 8th wonder of the world. Use it to right and you'll benefit from it a lot. Use it wrong and it will play against you for years to come. It goes like this:

A=P(1+r/n)nt

Where:

• A is the amount after applying interest rate.
• P is the amount of the initial investment.
• r is the interest rate expressed in decimal.
• n is the number of times interest rate is applied (number of cycles).
• t is the amount of time the investment is invested for.

What exactly is interest rate? It's the amount a lender charges for the use of assets expressed as a percentage of the initial principal . Or in simpler terms, how much, for example, a bank pays you for lending them a certain amount of money to on a yearly basis.

The foundations of the compound interest equations date back to ancient Rome, where law severely condemned it. In the 14th century, however, an Italian merchant, Francesco Balducci Pegolotti, was the first one to provide a table of what happens when 100 lire is invested for 20 years for interest rates of 1% to 20% .

The first true literature on compound interest equation followed in the 17th century. Richard Witt published a book called Arithmeticall Equations, which was entirely devoted to the compound interest formula, whereas former resources only discussed it in brief .

For me, the reasons that this equation is the most important equation in all of human history are three. First, it's easy to understand and implement, it's broadly applicable, and with its help, anyone can achieve remarkable results.

## Easy To Understand And Implement

Understanding compound interest is not especially hard. On the other hand, understanding, for example, the Black-Scholes Equation is almost unthinkable for an average human not diving deep into economics and mathematics. The value of something will grow exponentially each time the interest rate is applied. That's something called a cycle. That same interest rate is then applied in the next to that value and so on. The amount of something multiplies exponentially with every cycle. The true benefits, however, show themselves only when thinking about it in the long run. The implementation is just as simple. Applying the fact that small, steady and frequent increases lead to big results can be applied in the fields such as knowledge, skills and investing. This tells another thing about it - it's broadly applicable.