Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest.
The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. Divide 72 by the annual rate of return to get the approximate number of years it will take for the investment to double.
For example: At a 8% annual return, your money will double in approximately 72 ÷ 8 = 9 years.
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The formula for compound interest with regular contributions is:
Where FV is future value, P is principal, r is annual interest rate, n is compounding frequency, t is time in years, and PMT is the regular payment.
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Rachel Lee
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Michael Chen
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