Compound Interest
investmentAlso known as: compound interest, compounding
Updated · Written and reviewed by Konstantin Iakovlev
Detailed explanation
A = P(1 + r/n)^(nt) where A = future value, P = principal, r = annual rate, n = compounding periods/year, t = years. $10,000 invested at 7% annual return compounded yearly grows to $19,672 in 10 years, $38,697 in 20, $76,123 in 30, $149,745 in 40. Reinvesting dividends and capital gains amplifies the effect. The "Rule of 72": divide 72 by your annual return to find years to double (72/7 = ~10.3 years). Daily compounding produces slightly higher returns than annual compounding for the same nominal rate.
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