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The interest rate is applied to the original principle and any accumulated interest.
Compound interest is critical to investment growth. With simple interest, interest is paid just on the principal. With compound interest, the return that you receive on your initial investment is automatically reinvested. In other words, you receive interest on the interest.
Future Value = Present Value (1+r)^n
r= interest rate
n= time period
Future value of today's Rs 100 @10% per annum after one year will be Rs. 110/-
Thus compounding technique is use to find the future value of the investment
Future value of Annuity
WE can also use the compounding technique to find out the future value of annuity in the following manner:
Example:
What's the future value in 10 years of $1,000 payments received at the beginning of each year for the next 10 years? A 5...
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