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After the first year the capital would be worth 5% more than one cent, or 1.05 cents. Anyhow, I’m relieved I found it because your subject material is exactly what I’m looking for (writing a college paper) and I hope you don’t mind if I gather some information from here and I will of course credit you as the source. Compound interest arises when interest is added to the principal of a deposit or loan, so that, from that moment on, the interest that has been added also earns interest. Since most people prefer to think of rates as a yearly percentage, many governments require financial annual interest formula institutions to disclose the equivalent yearly compounded interest rate on deposits or advances.

The force of interest is less than the annual effective interest rate, but more than the annual effective discount rate. The “make money quick” part is entirely up to you, this takes a good understanding of how the markets work, which is more than i can tell you here but, i will refer you to a good beginners resource.

As a thank you for submitting your question, well also give you the opportunity to subscribe — for FREE — to some of the most invaluable financial publications on the market. A bank account, for example, may have its interest compounded every year.

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