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Compound Interest Concept Video Lecture | Quantitative for GMAT
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FAQs on Compound Interest Concept Video Lecture - Quantitative for GMAT
| 1. What is compound interest and how does it work? |  |
Compound interest is the interest calculated on both the initial principal amount and the accumulated interest from previous periods. It works by reinvesting the interest earned back into the principal, allowing for exponential growth of the investment over time.
| 2. How is compound interest different from simple interest? | |
Compound interest differs from simple interest in that it takes into account the accumulated interest from previous periods, while simple interest only considers the initial principal amount. As a result, compound interest tends to generate higher returns over time compared to simple interest.
| 3. How can I calculate compound interest? | |
To calculate compound interest, you need to know the initial principal amount, the interest rate, and the time period. The formula for compound interest is: A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the time period in years.
| 4. What is the significance of compounding frequency in compound interest? | |
The compounding frequency refers to how often the interest is calculated and added to the principal. The higher the compounding frequency, the more frequently interest is added, resulting in greater overall returns. For example, if interest is compounded annually, you will earn less compared to when it is compounded quarterly or monthly.
| 5. Can compound interest work against me? | |
Compound interest typically works in your favor by accelerating the growth of your investments. However, if you have debts or loans with compound interest, it can work against you. In such cases, the accumulated interest can quickly accumulate, making it harder to repay the debt or loan in a timely manner.
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Dec 22, 2024 Last updated |
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