Compound: Difference between revisions
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1. ''Interest - growth.'' | |||
To compound means: | To compound means: | ||
* to calculate interest, return or growth on an accumulating total, | * to calculate interest, return or growth on an accumulating total, | ||
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Compound rates of return or growth are similarly calculated based on the rolling up accumulated total amount, rather than just the initial amount. | Compound rates of return or growth are similarly calculated based on the rolling up accumulated total amount, rather than just the initial amount. | ||
<span style="color:#4B0082">'''Example: compound growth calculation'''</span> | |||
Rate of growth per year (r) = 30%. | |||
Number of years in the total time under review (n) = 2. | |||
Starting amount $100m | |||
Growth for the first year: | |||
= $100m x 0.30 | |||
= $30m | |||
Balance at the end of the first year: | |||
$100m + $30m | |||
= $130m | |||
Growth for the second year: | |||
= $130m x 0.30 | |||
= $39m | |||
Balance at the end of the second year: | |||
$130m + $39m | |||
= $169m | |||
Total percentage growth for the two-year period: | |||
169/100 - 1 | |||
= 1.69 - 1 | |||
= 0.69 | |||
= '''69%''' | |||
2. ''Adjective.'' | |||
Containing more than one element, for example a compound financial instrument. | |||
== See also == | == See also == | ||
* [[Compound Annual Growth Rate]] | * [[Compound Annual Growth Rate]] | ||
* [[Compound instrument]] | |||
* [[Compound interest]] | |||
* [[Compounding effect]] | * [[Compounding effect]] | ||
* [[ | * [[Compounding factor]] | ||
* [[Cumulative compounded rate]] (CCR) | |||
* [[De-compound]] | |||
* [[Effective annual rate]] | * [[Effective annual rate]] | ||
* [[Financial instrument]] | |||
* [[Interest]] | * [[Interest]] | ||
* [[Interest rate]] | * [[Interest rate]] | ||
Latest revision as of 14:13, 2 November 2022
1. Interest - growth.
To compound means:
- to calculate interest, return or growth on an accumulating total,
- including earlier amounts of interest, return or growth.
Compound interest is calculated as ‘interest on interest’ as well as interest on the original principal amount.
Compound rates of return or growth are similarly calculated based on the rolling up accumulated total amount, rather than just the initial amount.
Example: compound growth calculation
Rate of growth per year (r) = 30%.
Number of years in the total time under review (n) = 2.
Starting amount $100m
Growth for the first year:
= $100m x 0.30
= $30m
Balance at the end of the first year:
$100m + $30m
= $130m
Growth for the second year:
= $130m x 0.30
= $39m
Balance at the end of the second year:
$130m + $39m
= $169m
Total percentage growth for the two-year period:
169/100 - 1
= 1.69 - 1
= 0.69
= 69%
2. Adjective.
Containing more than one element, for example a compound financial instrument.
