100000 150000 200000 no your 80000 would have grown

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Unformatted text preview: 150,000? $200,000? No, your $80,000 would have grown to $242,000! Why? Because the time value of money allowed your investments to generate returns that built on each other over the 40 years. 136 PART 2 Important Financial Concepts compound interest Interest that is earned on a given deposit and has become part of the principal at the end of a specified period. principal The amount of money on which interest is paid. future value The value of a present amount at a future date, found by applying compound interest over a specified period of time. EXAMPLE The Concept of Future Value We speak of compound interest to indicate that the amount of interest earned on a given deposit has become part of the principal at the end of a specified period. The term principal refers to the amount of money on which the interest is paid. Annual compounding is the most common type. The future value of a present amount is found by applying compound interest over a specified period of time. Savings instituti...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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