discounting..ie....1/(1+r)^n
compounding
it deals with bank accounts and interest (compounding interest)
At the end of the second period
I'm thinking of bonds when answering this question. The more frequent the compounding the better it will be for the lender. The less frequent the compounding the better it will be for the borrower. Lets use this example: Interest = 10% Principle = $1000 Compounding A = Annually Compounding B = Quarterly Time period = 2 years A) At the end of the first year $100 in interest would have been made making the balance $1100. At the end of the second year $110 would be earned because of compounding and the balance would be $1210. B) At the end of the first year $103.81 in interest would have been earned with a ending balance of $1103.81. At the end of the second year the interest earned would be $114.59 and the ending balance would be $1218.40. What I showed here is that if you are the one receiving the interest you would prefer daily compounding. When you're paying out interest you would prefer simple interest.
Corresponding compounding is the interest rate on loan or the financial product restated from nominal interest rate as an interest rate with an annual compound interest.
Interest paid on interest previously received is the best definition of compounding interest.
Interest paid on interest previously received is the best definition of compounding interest.
The terminology of compounding interest means adding interest to the interest that one already has on an account. The interest could be added to a bank account or to a loan.
Compounding rate is the interest rate at which the rate grow faster than the simple interest on deposit or loan made. It is also said "interest on interest".
Continuous compounding is the process of calculating interest and adding it to existing principal and interest at infinitely short time intervals. When interest is added to the principal, compound interest arise.
You would use a compounding interest calculator in order to determine how quickly a certain amount of money will grow due to compounding interest. It is useful for determining how much to save and invest over several years.
compounding
The answer, assuming compounding once per year and using generic monetary units (MUs), is MU123. In the first year, MU1,200 earning 5% generates MU60 of interest. The MU60 earned the first year is added to the original MU1,200, allowing us to earn interest on MU1,260 in the second year. MU1,260 earning 5% generates MU63. So, MU60 + MU63 is equal to MU123. The answers will be different assuming different compounding periods as follows: Compounding Period Two Years of Interest No compounding MU120.00 Yearly compounding MU123.00 Six-month compounding MU124.58 Quarterly compounding MU125.38 Monthly compounding MU125.93 Daily compounding MU126.20 Continuous compounding MU126.21
150,000 per year (simple interest, no compounding)
it deals with bank accounts and interest (compounding interest)
The interest on a loan can be calculated in one of two ways - compounding or simple. Most loans in the U.S. are compounding loans, meaning that the interest is added to the principle each month before the new interest amount is calculated.
The interest on a loan can be calculated in one of two ways - compounding or simple. Most loans in the U.S. are compounding loans, meaning that the interest is added to the principle each month before the new interest amount is calculated.