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The emergence of compound interest

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  • Lewin, C. G.

Abstract

Compound interest was known to ancient civilisations, but as far as we know it was not until medieval times that mathematicians started to analyse it in order to show how invested sums could mount up and how much should be paid for annuities. Starting with Fibonacci in 1202 A.D., techniques were developed which could produce accurate solutions to practical problems but involved a great deal of laborious arithmetic. Compound interest tables could simplify the work but few have come down to us from that period. Soon after 1500, the availability of printed books enabled knowledge of the mathematical techniques to spread, and legal restrictions on charging interest were relaxed. Later that century, two mathematicians, Trenchant and Stevin, published compound interest tables for the first time. In 1613, Witt published more tables and demonstrated how they could be used to solve many practical problems quite easily. Towards the end of the 17th century, interest calculations were combined with age-dependent survival rates to evaluate life annuities, and actuarial science was created.

Suggested Citation

  • Lewin, C. G., 2019. "The emergence of compound interest," British Actuarial Journal, Cambridge University Press, vol. 24, pages 1-1, January.
    • Handle: RePEc:cup:bracjl:v:24:y:2019:i::p:-_34
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    Cited by:

    1. Illia Morhachov & Ievgen Ovcharenko, 2021. "Refutation of the Theory of “Compound Interest Effect” in the Capitalization of Dividends," Management Theory and Studies for Rural Business and Infrastructure Development, Sciendo, vol. 43(1), pages 13-20, March.
    2. Kunter Gunasti & Haipeng (Allan) Chen, 2023. "Consumer misestimations of small recurring changes vs. a single large lump sum," Marketing Letters, Springer, vol. 34(4), pages 605-617, December.

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