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What is the major difference between simple and compound interest?
Simple interest is computed once; compound interest is computed as many times as compounding frequency requires.
What is compounding frequency?
It's a number of times interest is compounded (calculated).
Does principal stay the same in compound interest scenario?
No, it changes every time the interest is compounded (calculated).
You borrow $100, and interest is compounde semi-annually at 5% rate. What will be the amount of principle after first 6 month?
$100 + ($100x 5%)=$105
Is amount of compound interest the same every time it is computed?
No, it grows because it is computed based on growing principle.
How does principal change in compound interest scenario?
It keeps on growing because every time interest is computed it is added to the principal.
What mathematical concept is compound interest based upon?
It's based on the idea of geometrical progression.
What factors influence total amount of compound interest to be paid?
Beginning principal, compounding frequency, and interest rate.
What type of compounding frequency is usually used by credit card companies?
Interest, compounded daily.
What type of compounding frequency is usually used by banks when computing mortgage interest?
Interest, compounded monthly.
Given the same amount of beginning principal and the same interest rate, which compounding frequency will result in a higher final interest: when compounded semi-annually or monthly?
Monthly is always higher.
True of falce: higher compounding frequency always results in a higher final interest.
True.
True of false: You can fully trust any bank without even reading terms of their financial agreement.
False. Remember to read the fine print.
True of false: You can easily back out of any business agreement (without any penalties), if you discover that the conditions were not clearly disclosed to you.
False. It's your responsibility: "caveat emptor" (Buyer Beware)
