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Understanding Compound Interest Video Lecture - Class 8
FAQs on Understanding Compound Interest Video Lecture - Class 8
| 1. What is compound interest? |  |
Ans. Compound interest is the interest that is calculated not only on the initial principal amount but also on the accumulated interest from previous periods. In other words, it is the interest earned on both the initial investment or principal and the interest that has been previously earned.
| 2. How is compound interest different from simple interest? | |
Ans. Compound interest differs from simple interest in the way it is calculated. While simple interest is calculated only on the principal amount, compound interest takes into account both the principal amount and the accumulated interest. This means that compound interest grows faster over time compared to simple interest.
| 3. What is the formula for calculating compound interest? | |
Ans. The formula for calculating compound interest is given by 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 times the interest is compounded per year, and t is the number of years.
| 4. How does compound interest affect savings and investments? | |
Ans. Compound interest has a significant impact on savings and investments as it allows the growth of money over time. By reinvesting the interest earned, the initial amount grows exponentially, resulting in higher returns. This makes compound interest an essential factor in long-term financial planning and wealth accumulation.
| 5. Can compound interest work against you? | |
Ans. Although compound interest is generally beneficial for investments, it can work against you when borrowing money. When you take a loan or credit, the interest on the borrowed amount compounds over time, leading to an increase in the total amount to be repaid. This is why it is crucial to consider the impact of compound interest when taking on debt.
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Oct 25, 2024 Last updated |
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