I want a story in which compound interest is used.. Like i need a story in which compound interest is used in real life
Answers
Answer:
The history of compound interest goes back thousands of years, at least to Babylon, the traditional for Israel. What compounding means is the adding of accumulated interest back to the principal so that interest is earned on interest from that moment on (Wickipedia; the peoples dictionary). This is far different than simple interest, which means that the principle remains separate from the interest, which is paid to the creditor at various intervals, and so is not added to the principal amount. In other word, compound interest is when you put your money in a bank, you will normally receive interest. Interest is a percentage received on the invested amount for a period of (usually) a year.
Principal for compound interest:
For example, say you invest RM1000 in a bank for 5 years at 5.00% interest per annum…
As you can see, your balance at the end of 5 years, using compounding is RM1276.30. However, if the simple interest calculation is used, you would only receive RM1250.00 at the end of 5 years.
So basically, compounding allows the interest you receive at the end of each year to generate more interest for the following years of your investment period thus enhancing your total returns.
Formula:
When the interest is compounded once a year:
A = P(1 + r)n
However, if you borrow for 5 years the formula will look like:
A = P(1 + r)5
This formula applies to both money invested and money borrowed.
Frequent Compounding of Interest:
What if interest is paid more frequently?
Examples of the formula:
Annually = P ?” (1 + r) = (annual compounding)
Quarterly = P (1 + r /4)4 = (quarterly compounding)
Monthly = P (1 + r /12)12 = (monthly compounding)
P = the principal (the initial amount you borrow or deposit)
r = the annual rate of interest (percentage)
n = the number of years the amount is deposited or borrowed for.
A = the amount of money accumulated after n years, including interest.
Compound interest from Malaysian perspective.
This time I want to show a newslater I subscribe from the young Malaysian millionaire mr. Irfan Khairi. He tells about the power of “compound interest” when we had saving. Compound Interest is the most important tool that gives rich people in the world. The key is, can start saving as early as even a little, and discipline to keep the consistency.