Question

Explain the differences and similarities between compound interest (for money saved) and compound growth (for money invested)

Answer 1

Answer:

The world of finance can seem boring to many people, and it's true that the thought of accounting rules, tax laws, valuation formulas, and inventory management systems might put you to sleep. But there's one concept in the financial realm that should have you sitting upright and paying attention, possibly even bubbling with excitement. That's the concept of compounding.

After all, what's more exciting than watching money grow? That's compounding at work, whether it's compound interest (as opposed to simple interest) or the compounded growth of stocks in a portfolio. Here's a comprehensive guide offering all you need to know about compounding.

Answer 2

Explain the differences and similarities between compound interest (for money saved) and compound growth (for money invested).

• Compounding, often known as compound growth or compound interest, is the answer. Compound growth is the idea that the initial investment increases annually, whether via dividends, interest, or capital gains.
• Similar to compound interest is compound growth. You can earn interest on interest by using compound interest. In addition to all of the interest that accumulates over time, you earn interest on both the initial investment and any subsequent contributions.
• When you add the interest you have already earned back into your principal balance, you are earning compound interest, which increases your profits. Consider that you have $1,000 in a savings account earning 5% interest annually. If you made $50 in the first year, your new balance would be $1,050.
• Compound growth is the average rate of growth that an investment experiences over a number of years. When considering the investing landscape, one way to think about the compound growth rate is that it accounts for all the hills and valleys.

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