Compounding

Question 1

How do many institutions pay interest?

Answer 1

They pay interest in tiered rates.

Question 2

Does a larger balance usually earn a higher interest rate?

Answer 2

Yes.

Question 3

Is interest paid at the same time, everyday?

Answer 3

No - there may be variations of when interest is paid.

Can be paid Monthly, Quarterly or annually.

Question 4

How can interest benefit investors?

Answer 4

Some investors rely on interest as income.

Question 5

Describe Compounding?

Answer 5

Depositor earning interest on paid interest.

Question 6

What is the equation used to compare the terminal wealth?

Answer 6

T=C(1+(I/N))n

C- Initial cash deposit
I - Annual rate of interest (%)
N- Number of times interest paid annually
T - Terminal Wealth

Question 7

Does compounding apply if the interest is withdrawn?

Answer 7

No

Question 8

What does compounding allow you to compare?

Answer 8

Headline rate of interest, how frequently interest is calculated and applied and if it is flat or compound rates.