Videos: Compound Interest

What Is Compound Interest?

No really, what is compound interest?

  1. 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

  1. 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?

  1. You deposit $10,000 at j4 = 12% for 54 months. How much money will you have?

  1. 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?

  1. How much money do you need to invest to earn $1000 interest in 18 months if the interest rate is 8% compounded quarterly?

  1. 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?

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