Difference between how compound interest is a friend and a foe? ( 5 points each)
Answers
Step-by-step explanation:
When compound interest is your best friend. Compound interest is an investor's greatest tool and can work wonders for your investment portfolio. Compound interest works best when you have a large starting balance and a lot of time, as the gains become almost exponential as time goes by. Earning more money from your money is every investor's dream! But you don't need a large balance to start gaining the benefits of compound interest. You just need to get started; compound interest can work on any amount.
This seems like an overstatement when taken at face value. But when examined closely, you realize the true brilliance of the statement. Compound interest truly is one of the most powerful forces in the universe. Check out this compound interest graphic to see a visualization of compound interest at work.
When compound interest is your best friend. Compound interest is an investor's greatest tool and can work wonders for your investment portfolio. Compound interest works best when you have a large starting balance and a lot of time, as the gains become almost exponential as time goes by. Earning more money from your money is every investor's dream! But you don't need a large balance to start gaining the benefits of compound interest. You just need to get started; compound interest can work on any amount.
When compound interest is your enemy
You wouldn't want an atomic bomb in the hands of you worst enemy, but that is exactly what compound interest is when it is working against you. When you incur debt, you pay interest to the lender until you repay the loan. If you don't pay more than the monthly interest charge, your bill will continue to increase each month until the debt becomes almost insurmountable. This is rare for standard loans such as a car loan or a mortgage, but it is a real possibility if you only make the minimum payments on credit cards, which often don't cover more than the interest and finance charges. Making minimum payments makes it easy to stretch out your loan almost indefinitely, resulting in total payments that can be hundreds or even thousands of Rupees more than the original purchase.
The interest calculated on a loan or deposit based on both the initial principal and the accumulated interest from previous periods of time is known as compound interest. This compound interest can also be thought of as an 'interest on interest'
Explanation
The main benefit of using compound interest is that when customers have loans that carry grand interest rates, such as credit card bill dues, say for example - A credit card balance of 20,000 INR carried out at an interest rate of 20 percent compounded monthly would result in a total compound interest of 4388 INR over one year or about 365 INR per month.