Videos: Compound Interest
What Is Compound Interest?
No really, what is compound interest?
- Invest $100 for one year with a nominal rate of 24%. Fill in the table if you compound…
| Compound… | m | Nominal (jm) | Periodic (i) | Periods (n) in a year | FV of $100 in 1 year. |
| Annually | |||||
| Semi-annually | |||||
| Quarterly | |||||
| Monthly |
- You acquire $5,000 and deposit the money in a mutual fund that has an average return of 9% compounded annually. How much will you have when you retire in 25 years?
- You deposit $10,000 at j4 = 12% for 54 months. How much money will you have?
- You would like to save $20,000 so you can take a year off in 42 months. How much should you deposit today if money earns 4% compounded semi-annually?
- How much money do you need to invest to earn $1000 interest in 18 months if the interest rate is 8% compounded quarterly?
- Macleans Magazine estimates that it will cost $130,000 for a four year university education when children born this year reach university in 18 years.
(a) You have $10,000 to invest today. What annual rate is required to reach $130,000?
(b) How much do you need to invest if you can only expect a rate of return of j2=12%?
(c) You deposit $12,000 and invest in bonds that pay 6% compounded semi-annually. How old will your child be when they can start university?
