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Concepts: Compound Interest Video Lecture | CSAT Preparation - UPSC
FAQs on Concepts: Compound Interest Video Lecture - CSAT Preparation - UPSC
| 1. What is compound interest? |  |
Ans. Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods. In other words, it is the interest earned on the initial investment as well as on the interest that has been added to the principal over time.
| 2. How does compound interest differ from simple interest? | |
Ans. Compound interest differs from simple interest in that simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal amount and any previously earned interest.
| 3. Why is compound interest considered to be more beneficial in the long run? | |
Ans. Compound interest is considered to be more beneficial in the long run because it allows for exponential growth of the investment. As the interest is reinvested and added to the principal, the amount on which interest is calculated increases over time, resulting in higher returns compared to simple interest.
| 4. What factors affect the amount of compound interest earned? | |
Ans. The amount of compound interest earned is affected by the interest rate, the frequency of compounding, and the time period for which the interest is calculated. A higher interest rate, more frequent compounding, and a longer investment period will result in greater compound interest.
| 5. How can compound interest be calculated manually? | |
Ans. Compound interest can be calculated manually using the formula A = P(1 + r/n)^(nt), where A is the future value of the investment, P is the principal amount, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years the money is invested for.
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