Compound Interest: How to Calculate and Profit – Compound Interest: How to Calculate and Profit, Investing, particularly equities, currently provides fairly attractive gains. Starting with the dividend income, ownership, and transparency, and on to the numerous business prospects.

Unfortunately, success in stock investing necessitates a high level of precision and accuracy. Furthermore, there are other words that must be comprehended.

Compound Interest: How to Calculate and Profit, Consider compound interest. Do you want to understand what compound interest is and how it works?

What Exactly is compound interest?

Understanding compound interest or interest itself (compound interest) is interest computed from the principle amount plus previously earned interest.

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As a result, in addition to interest paid on a number of original funds, interest payments that have accrued through time can be ended. This then develops into a flower blossoming.

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As the name suggests, don’t be shocked if the advantages multiply. Already receiving income from the main fund, as well as interest received earlier.

Isn’t that a significant multiplier advantage? If you come across the term ‘flowering interest,’ the inverse is simple interest or single interest. Unlike compound interest, this single interest rate is determined only by the quantity of deposits.

For example, if you save Rp. 10 million with 5% bank interest every year, your savings will be Rp. 10.5 million in year I. The formula is as follows:

IDR 10 million (savings) x 5% annual interest = IDR 500 thousand (amount of interest earned). Because your savings employ a basic interest scheme, your interest calculation in year II will be

The interest will still be calculated on the deposit’s principle amount, which is IDR 10 million x 5% = IDR 500 thousand.

Thus, your savings in year II equal Rp. 10,500,000 (year I) + Rp. 500,000 (interest in year II) = Rp. 11,000,000. (total amount of savings in year II).

This compound interest has an inverse relationship to the single interest. You may already anticipate how much profit you will make if you benefit from a savings account with interest yielding interest that can quadruple your money.

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Consider the following scenario: you deposit IDR 100 million at a bank and earn an annual interest rate of 8%. You would receive Rp8 million in interest throughout the first year. As a result, the total amount deposited in the bank is IDR.

As a result, with compound interest, the interest payments are added to the total deposits that have already been added to the preceding interest.

This is known as a ‘flowering flower.’ Calculate the following results if you store money in the bank for 5 years at compound interest:

Year I

IDR 100,000,000 (original deposit) x 8% (year interest) = IDR 8,000,000 (income from interest). IDR 100,000,000 + IDR 8,000,000 = IDR 108,000,000 is the total deposit.

Year Two

IDR 108,000,000 (amount saved in the second year) x 8% (annual interest) = IDR 8,640,000 (income from interest). Total deposits are IDR 108,000,000 plus IDR 8,640,000 for a total of IDR 116,640,000.

Year Three

Rp116,640,000 (third-year deposit amount) x 8% (annual interest rate) = Rp9,331,200 (Interest earnings) Deposits total IDR 116,640,000 + IDR 9,331,200 = IDR 125,971,200.

Year four

IDR 125,971,200 (fourth-year deposit amount) x 8% (year interest rate) = IDR 10,077,696 (income from interest). Deposits total IDR 125,971,200 + IDR 10,077,696 = IDR 136,048.896.

year V

Rp136,048,896 (five-year deposit amount) x 8% (year interest rate) = Rp10,883,911.68 (income from interest). Deposits total IDR 136,048.896 + IDR 10,883,911.68 = IDR 146,932,807.68

As a result of your deposit’s compound interest payment mechanism, you will receive an interest profit of Rp. 46.9 million from a total deposit of Rp. 100 million after 5 years. So, in that five-year period, you will have saved IDR 146.9 million.

The following question concerns whether stocks may earn compound interest. While some equities pay dividends, none pay interest, either basic or compound. Stocks are investments with no assurance of return and can potentially lose value in certain circumstances.

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The only method to gain “income” from stocks is to invest in companies that pay dividends, which can then be reinvested by purchasing additional shares.

There are several types of stock. Dividends are normally paid first to holders of preferred stock (stocks that offer their holders first priority), although in rare situations, common stock may qualify for dividends as well.

Some brokers allow consumers to set up automatic dividend reinvestment. This is frequently accomplished through the use of a dividend reinvestment plan.

Author: Irdansyah
I'm a regular contributor to IRDANSYAH commander, and in my business blog, my team and I share tales on the experience of starting a business from zero, how it feels to build a startup, and how to scale-up.

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