**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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