ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Compound interest can help grow your funds year over year through accumulative interest. For example, if you earn 5% yearly interest on $1, 000, you’ll earn just over $276 over the course of five years. Just imagine: If you invest an extra $1, 000 per year, for 50 years, you could save as much as $220, 000.

Detailed explanation-2: -Compound interest, can be calculated using the formula FV = P*(1+R/N)^(N*T), where FV is the future value of the loan or investment, P is the initial principal amount, R is the annual interest rate, N represents the number of times interest is compounded per year, and T represents time in years.

Detailed explanation-3: -Simple interest is calculated using only the principal amount of the loan. Compound interest is calculated using the principal amount of the loan, plus the interest that has accumulated over previous periods.

Detailed explanation-4: -The longer the investor can allow their returns to compound, the more money they may be able to make. As a result, investors may want to consider compounding as more a part of a long-term investment strategy than a short-term strategy.