Compound Interest Example

In banking when you are depositing money you always hear the word compound interest, so what does it mean. Well it refers to process where the banks or financial institutions would add the interest to your principal amount so that from next year even that interest would generate income.

It can be better understood with the help if an example, suppose an individual has deposited $1000 into bank at 10 percent interest rate for 5 years than at the end of 1st year he or she will not receive $100 rather bank would add that $100 to $1000 and in 2nd year an individual would be getting interest of $110 and not $100 as additional $10 is the interest income on interest for a person. This will keep happening till maturity and at the end a person would be getting more interest income under compound interest method than simple interest method.

0 comments… add one

Leave a Comment

Related pages

advantages of marginal cost pricingwhat is unearned revenuefreight means in hindiadvantages and disadvantages of profitability ratiosdefine demand deposit accountborder fence pros and consmarket skimming pricing examplesskimming and penetration pricingmerit and demerits of internetsystematic and non-systematic riskindirect expenses in accountingbank loan accounting entriesskimming price strategy definitioninferior vs normal goodfull form nasdaqenvironmental pollution advantages and disadvantagesdefinition of drawer and draweelimitation of managerial economicsconsignor meanstrial balance meaning in hindimerger and acquisition advantagesdifferent types of factoringconservatism principle in accountingwhat are some disadvantages of centrally planned economiescapitalism socialism mixed economymerits and demerits of nationalizationunearned rent revenue balance sheetadvantage debit cardadvantages and disadvantages of capitalism and socialismdefine crossed chequeexamples of current liabilities on a balance sheethypoticationadvantages and disadvantages of environmental auditfreight outwarddifferent elasticities of demandadvantages of barter tradepros and cons of command economywhat is the meaning of cross chequewikipedia in hindi narendra modipros and cons of command economymonopolistic competition characteristicswhat are the characteristics of a traditional economycurrent cost accounting advantages and disadvantagesfunctions of regional rural banksdefine securitizeimpulse buying meaningmarket penetration advantages and disadvantageswhat is consignor and consigneeconsignor and consigneedisadvantages and advantages of advertisementthree golden rules of accounting with exampleadvantages of autocratic leadership stylefluctuating fund systemlimitations of absorption costingdcf approachregular payback periodwhat is autocratic leaderadvantage of lifoexample of law of diminishing returnsdirect and indirect quotation exampleswhat are different types of chequesconglomerate merger examplewhat is operating cycle in financedisadvantages of delegationbundling pricing strategy exampleswholesale lending definitiondefine inferior goods in economicsvertical analysis for balance sheettypes of factoring methodsfeatures of capitalismwhat is a conglomerate merger