To illustrate the effect of compounding, let's take a look at an example chart of an initial $1,000 investment. We'll use a 20 year investment term at a 10% annual interest rate (just for simplicity). As you compare the compound interest line to those for standard interest and no int...
Many important financial decisions hinge on a proper understanding of compound interest. Draft 2 For example, decisions on how much and when to invest in a 401(k) plan, or whether to refinance a loan and how to trade off various attributes of a loan instrument (rate, points up front, ...