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Compound Interest Tips and Tricks for Government Exams

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FAQs on Compound Interest Tips and Tricks for Government Exams

1. How does compound interest work?
Ans. Compound interest is calculated on both the initial principal amount and the accumulated interest of previous periods. This means that as time goes on, the interest earned on the principal increases, resulting in a higher total interest earned.
2. What is the formula for calculating compound interest?
Ans. The formula for calculating compound interest is: A = P(1 + r/n)^(nt), where A is the final amount, P is the principal amount, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years.
3. How does compound interest differ from simple interest?
Ans. Compound interest takes into account the accumulated interest of previous periods, while simple interest only calculates interest based on the original principal amount. This means that compound interest tends to grow at a faster rate over time compared to simple interest.
4. Can compound interest be negative?
Ans. No, compound interest cannot be negative. Compound interest is always calculated as a positive value, as it represents the additional amount earned or owed on an investment or loan.
5. What are some strategies to maximize the benefits of compound interest?
Ans. To maximize the benefits of compound interest, it is recommended to start investing or saving early, as this allows more time for the interest to compound. Additionally, increasing the frequency of compounding, such as opting for quarterly or monthly compounding instead of annual, can also help to maximize the growth of your investment.
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