Course 102: The Magic of Compounding
The Components of Compound Interest
 In this course 1 Introduction 2 The Components of Compound Interest 3 Who Wants to Be a Millionaire? 4 Time Is on Your Side 5 Why Is Compound Interest Important to Stock Investing? 6 The Bottom Line

A dollar invested at a 10% return will be worth \$1.10 in a year. Invest that \$1.10 and get 10% again, and you'll end up with \$1.21 two years from your original investment. The first year earned you only \$0.10, but the second generated \$0.11. This is compounding at its most basic level: gains begetting more gains. Increase the amounts and the time involved, and the benefits of compounding become much more pronounced.

Compound interest can be calculated using the following formula:

FV = PV (1 + i)^N

FV = Future Value (the amount you will have in the future)
PV = Present Value (the amount you have today)
i = Interest (your rate of return or interest rate earned)
N = Number of Years (the length of time you invest)

 Search Print Lesson  | Feedback Del.icio.us | digg it