COURSE OVERVIEW:
Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. Thought to have originated in 17th century Italy, compound interest can be thought of as "interest on interest," and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.
The rate at which compound interest accrues depends on the frequency of compounding, such that the higher the number of compounding periods, the greater the compound interest. Since the interest-on-interest effect can generate increasingly positive returns based on the initial principal amount, it has sometimes been referred to as the "miracle of compound interest."
When calculating compound interest, the number of compounding periods makes a significant difference. The basic rule is that the higher the number of compounding periods, the greater the amount of compound interest.
Interest can be compounded on any given frequency schedule, from daily to annually. There are standard compounding frequency schedules that are usually applied to financial instruments. Understanding the time value of money and the exponential growth created by compounding is essential for investors looking to optimise their income and wealth allocation.
While the magic of compounding has led to the apocryphal story of Albert Einstein calling it the eighth wonder of the world or man’s greatest invention, compounding can also work against consumers who have loans that carry very high-interest rates, such as credit card debt. On the positive side, the magic of compounding can work to your advantage when it comes to your investments and can be a potent factor in wealth creation.
You can make more strategic financial decisions once you understand how compounding works.
This course is designed to provide a sound introduction to the uses of mathematics in compound interest topics, rules, formulas and how they work. And how it differs from its simple interest cousin. It has dual objectives of teaching both mathematics and financial literacy.
The first part of this course discusses the differences between simple and compound interest, and the reasoning behind compound interest. Then explains how to find the future value or present value of a sum of money invested at compound interest. Also, describes how to calculate compound interest using different compounding frequencies.
The second part examines how to evaluate the impact of compounding frequency on the total amount of interest earned. Then shows you how to find and interpret the effective interest rate for a given nominal rate and compounding frequency. Finally, explains how to apply the mathematical tools for compound interest to other types of compound growth.
LEARNING OUTCOMES:
By the end of this course, you will be able to understand:
- The concept of compound interest
- The difference between compound interest and simple interest
- The compound interest formula - How to use this formula within real business situations?
- How to follow order of operations?
- How to calculate compound interest? - How to use this rule within real business situations?
- How to calculate future value with compound interest?
- How to find present value? - How to use this rule within real business situations?
- How to calculate present value with compound interest?
- The rule of 72
- How to use the rule of 72 to find rates? - How to use this rule within real business situations?
- What is compounding frequencies?
- The compound interest formula for non-annual compounding - How to use this rule within real business situations?
- How to compare compounding frequencies?
- The continuous compounding formula
- Compound interest with “Messy” terms - How to rule this rule within real business situations?
- The non-annual compounding and the rule of 72
- How to compare interest rates?
- How to find the effective interest rate for a nominal rate?
- The effective rate formula - How to use this formula within real business situations?
- How to use effective rates for comparisons?
- How to use effective rate with “Messy” terms?
- Compound growth other than interest
- When “interest” isn’t really interest
- How to compare effective and nominal rates? - How to use this rule within real business situations?
- Solving for the interest rate (annual and non-annual compounding) - How to use this rule within real business situations?
- How to convert from effective rates to nominal rates?
- Solving for time - How to use this rule within real business situations?
COURSE DURATION:
The typical duration of this course is approximately 3-4 hours to complete. Your enrolment is Valid for 12 Months. Start anytime and study at your own pace.
COURSE REQUIREMENTS:
You must have access to a computer or any mobile device with Adobe Acrobat Reader (free PDF Viewer) installed, to complete this course.
COURSE DELIVERY:
Purchase and download course content.
ASSESSMENT:
A simple 10-question true or false quiz with Unlimited Submission Attempts.
CERTIFICATION:
Upon course completion, you will receive a customised digital “Certificate of Completion”.