Understanding Compound Interest

#trading #invest #finance


1. Compound interest, here's how it happens.
2. You have an initial sum, called the principle sum.
3. Compound interest occurs when interest gets added to the principal amount invested or borrowed, and then the interest rate applies to the new (and larger) amount.
4. This accrual of interest calculations causes interest on the interest.
5. To easier understand the concept, here is an example of compound interest.
6. When money is invested into a situation where interest accrues, there is a set or expected rate upon which further money is accumulated.
7. There is the initial amount, the interest rate, and the compounding frequency, or the number of times over a span of time the interest rate is applied.
8. If the annual interest on a sum is 10%, then 1000 dollars invested would net 1100 dollars over a year.
9. This is the principle amount of 1000 dollars plus the interest amount of a 10% of a 1000 dollars, one hundred dollars, equaling 1100 dollars.
10. If left there the next interest would be on the total, including last year's interest.
11. The 1100 dollar amount would then grow to 1210 dollars after the next year.
12. After the third year you would have 1331 dollars.
13. 10% of the 1210 dollars from the previous year is 121 dollars, plus the 1210 dollars itself brings us to 1331 dollars.
14. This concept is a good way to accrue wealth as the longer it goes, the more impactful it becomes.
15. That same principle of 1000 dollars at 10% in 30 years would equal 17,449.40 dollars.
16. Compound interest is important because it will make a principle grow much faster than simple interest which is only applied once to the principle.
17. Thank you for watching our video on compound interest.


Please remember to like, subscribe, and check out some more of our other videos.

#finance #trading #compoundinterest #optionstrading #lifestyle #money


Trading Strategies
Live Trade Coaching
CFD's
Futures
Equities
Commodities
FX