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Chapter 10

Compound interest

A sum invested today will earn interest. Compounding calculates the
future, or terminal, value of a given sum invested today for a number of
years.

n
V = X (1 + r)
Where V = future (or terminal) value

X = initial investment (present value)

r = interest rate (expressed as a decimal)

n = number of time periods

Illustrations and further practice

Now read illustration ‘Compounding’ and try example 1 ‘Compounding’ from
Chapter 10.

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