blog 4- compound interest!

Hi! 

I'm professor Ali and I am going to teach you an easy lesson about compound interest today that I wish I had payed more attention to when I was younger.

It is a simple way to learn how to invest money for long periods- it's in your best interest!


just remember this simple formula:

                                    FV= PV x (1+r)^n

FV is your future value

PV is your present value (the money you are originally investing)

r is the annual interest rate that the bank is offering

n is the period of time (in years unless compounded monthly)

Using this formula, gather information from banks and plug in their offers to the according letters.

This way, you can compute which offer will get you the highest future value

Here are some examples--

If you have $1000 and the bank is offering a loan for 5 years at 6% interest...

1000 x (1 + .06)^5 = $1338.23

----------> the percentage is seen as .06 because in order to turn a percentage into a decimal, you must move the decimal point to the left two spots

If the bank offers a loan for 15 years at 10% interest...

1000 x (1 .15)^15 = $4177.25

Now it is up to you how long you want to invest your money, depending on your goal future value!