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Effect of Compounding

# Effect of Compounding - much money will you have 4 1 \$100 \$...

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Effect of Compounding The effect of compounding is not that great over short periods, but is significant over long time horizons. An extreme example: \$10,000 at 10% for 100 years = \$137,806,123 1

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The Power of Compounding Even if the interest rate is fixed, money grows at an increasing ( exponential ) rate. The growth rate of change is constant; the amount is not. As new interest is 2
The Power of Compounding Back to… \$10,000 at 10% for 100 years = \$137,806,123 3

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Investing For A Single Period Before we asked this question: If you invest \$100 at 10% for one year, how

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Unformatted text preview: much money will you have? 4 1 \$100 \$? Investing For A Single Period • Here’s a new question: – If you have \$110 today from a 10% investment you made one year ago, how much money did you invest? 5 \$110 1 ? Present Value • Financial managers often want to know how much they need to invest today to have a specific amount in the future. • Suppose you need \$10,000 in 10 years and can earn 6.5%. What do you need to invest today to have that amount in 10 years? 6...
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