Please forward this error screen to 77. The previous chapters gave investment deposit ratio formula basic understanding of the fundamental facts and concepts of the financial markets. This chapter presents financial mathematics to quantify some of these concepts with a very practical purpose of applying the concepts to daily life. In the most basic scenario, when an investor invests a sum of money in an instrument and holds it over time, it accumulates interest.
When an amount is invested at a given interest rate, the interest starts accruing. How interest accrues makes a difference in the total return on investment. In the following example the compounding frequency is annual, i. 25, which is a non-trivial improvement over the simple interest. And the gains become larger as the period becomes longer for the same annual interest rate.
They also become larger as the principal gets larger. V1 is the compound value at the end of 1 period, P0 the principal or beginning amount at time 0, and r the annual interest rate. The following table is a spreadsheet, and contains five periods. The table may be expanded to cover as many periods as desired. Note that the ending balance of each period becomes the beginning balance of the following period.