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n Learning and Teaching Mathematics - Why increasing the number of compounding periods won't make you as rich as you might think

Volume 2013, Issue 14
  • ISSN : 1990-6811

Abstract

Consider the following scenario: R1000 is invested for a single year at 10% p.a. compounded monthly. At the end of the year the balance has accumulated to R1104.71. The total interest earned, i.e. R104.71, is equivalent to 10.47% of the amount invested. Since the power of compound interest lies in the iterative process whereby interest is earned on interest, it makes intuitive sense that if you compound interest more frequently, you will earn more money. Many school textbook tasks suggest that this is the case when they change the frequency of compounding from annual to monthly to weekly. But is this intuition correct?

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/content/amesal/2013/14/EJC142529
2013-01-01
2019-08-23

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