Thursday, February 3, 2011
Wednesday, February 2, 2011
What is Compund Interest?
This is a term used while understanding the interest calculation for deposits.
Compounded quarterly means - the interest would be compounded every quarter.
Let us say you deposit $1000 in a bank @ 10% interest per year.
One year = 4 quarters
At the end of the 1st quarter:
principal = 1000, Interest = 25
=> Value of your investment at the end of the 1st qtr = $1025
At the end of the 2nd quarter:
principal = 1025, Interest = 25.625
=> Value of your investment at the end of the 1st qtr = $1050.625
If you see here, the interest earned here is 25.625 whereas the interest earned in the previous quarter was only $25. This is because for calculation of interest for the 2nd quarter, the interest earned in the first quarter would be added to the principal.
Shorter the compounding interval more the interest earned.
Read more: http://wiki.answers.com/Q/What_is_compounded_quarterly#ixzz1CsNTPkk7
Compounded quarterly means - the interest would be compounded every quarter.
Let us say you deposit $1000 in a bank @ 10% interest per year.
One year = 4 quarters
At the end of the 1st quarter:
principal = 1000, Interest = 25
=> Value of your investment at the end of the 1st qtr = $1025
At the end of the 2nd quarter:
principal = 1025, Interest = 25.625
=> Value of your investment at the end of the 1st qtr = $1050.625
If you see here, the interest earned here is 25.625 whereas the interest earned in the previous quarter was only $25. This is because for calculation of interest for the 2nd quarter, the interest earned in the first quarter would be added to the principal.
Shorter the compounding interval more the interest earned.
Read more: http://wiki.answers.com/Q/What_is_compounded_quarterly#ixzz1CsNTPkk7
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