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    Compound-Interest Obogne

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    Carlo Ricardo
    This document discusses how compound interest can turn €100 into €1 million over time. It explains that compound interest, also called interest on interest, is when interest earned is added to the principal amount. This increases the amount on which interest is calculated in subsequent periods. Tables show comparisons of simple versus compound interest over many years, demonstrating how the power of compounding can significantly increase returns the longer money is left to grow. It encourages saving and investing for the long run to take advantage of compounding interest.

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    Compound-Interest Obogne

    Uploaded by

    Carlo Ricardo
    22 views15 pages
    This document discusses how compound interest can turn €100 into €1 million over time. It explains that compound interest, also called interest on interest, is when interest earned is added to the principal amount. This increases the amount on which interest is calculated in subsequent periods. Tables show comparisons of simple versus compound interest over many years, demonstrating how the power of compounding can significantly increase returns the longer money is left to grow. It encourages saving and investing for the long run to take advantage of compounding interest.

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    Compound-Interest.Obogne

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    This document discusses how compound interest can turn €100 into €1 million over time. It explains that compound interest, also called interest on interest, is when interest earned is added to the principal amount. This increases the amount on which interest is calculated in subsequent periods. Tables show comparisons of simple versus compound interest over many years, demonstrating how the power of compounding can significantly increase returns the longer money is left to grow. It encourages saving and investing for the long run to take advantage of compounding interest.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    22 views15 pages

    Compound-Interest Obogne

    Uploaded by

    Carlo Ricardo
    This document discusses how compound interest can turn €100 into €1 million over time. It explains that compound interest, also called interest on interest, is when interest earned is added to the principal amount. This increases the amount on which interest is calculated in subsequent periods. Tables show comparisons of simple versus compound interest over many years, demonstrating how the power of compounding can significantly increase returns the longer money is left to grow. It encourages saving and investing for the long run to take advantage of compounding interest.

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    © All Rights Reserved
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    of 15

    Want to Be a Millionaire?

    You Can!
    If you leave your money to grow for a long time,
    € 100 can turn into a million euros. No, seriously.

    How?

    Through compounding.
    Compound Interest
    Compounding interest is "interest on interest."
    It is a method of calculating interest where the
    interest is added to the original principal.
    This new value is now our principal for the
    next time period. In this method the interest
    earned in past terms can earn interest in
    future terms.
    Compound Interest Formula
    Compound vs Simple Interest
    INTEREST ing Comparison : P=€ 1000; r=7%

    Period/years Simple Interest Compound Interest


    0 1.000,00 1.000,00
    1 1.070,00 1.070,00
    2 1.140,00 1.144,90
    3 1.210,00 1.225,04
    4 1.280,00 1.310,80
    5 1.350,00 1.402,55
    6 1.420,00 1.500,73
    7 1.490,00 1.605,78
    … …
    P= € 1000; r =7%
    Period/years Simple Interest Compound Interest
    23 2.610,00 4.740,53
    24 2.680,00 5.072,37
    25 2.750,00 5.427,43
    26 2.820,00 5.807,35
    27 2.890,00 6.213,87
    28 2.960,00 6.648,84
    29 3.030,00 7.114,26
    30 3.100,00 7.612,26
    Simple and Compound Interest Graph
    So, after this research,

    Would you rather earn compound


    or simple interest?

    Would you rather pay compound


    or simple interest?
    Time is on Your Side
    The longer you save, the greater the
    effect of compound interest.

    But also…

    The longer you borrow, the quicker


    your debts grow.
    Compounding Periods
    When calculating compound interest, the
    number of calculating periods makes a
    significant difference.
    The basic rule is that the higher the
    number of calculating periods, the greater
    the amount of compound interest.
    A bank may pay interest as follows:

    Semi-annually: twice a year or every 180 days


    Quarterly: 4 times a year or every 90 days
    Monthly: 12 times a year or every 30 days
    Daily: 360 times a year
    Check your understanding

    3) Find the future value of € 1000 invested for 10


    years at 7% interest :

    a. compounded annually
    b. compounded semi-annually
    c. compounded quarterly
    d. compounded daily
    Solution
    Identify the variables: P= € 1000, r = 0.07, t = 10
    a. n =1 ;

    b. n =2 ;

    c. n =4 ;

    d. n =360 ;
    At the end…

    Have a nice day!

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