Question

Does compound interest have more of an impact for short-term investments or long-term investments? Why?

Answer 1

Answer:

Compound interest have more of an impact for long-term investments

Explanation:

Interest earn on the principal for one period (P) is the same for compound and non-compound interest

The non-compound interest of period n is is the sum of P for all n periods: P*n

Compound interest is the result of reinvesting interest.

The compound interest of period n ($I_{n}$) = interest earned on the principal (P) + interest on previously accumulated interest of n-1 periods ($I_{n-1}$), where...

...previously accumulated interest of n-1 periods ($I_{n-1}$)= interest earned on the principal (P) + interest on previously accumulated interest of n-2 periods ($I_{n-2}$)

... and so on backward to the interest of period 1 = interest earned on the principal (P) = non-compound interest of period 1

It can be seen that the less (more) time pass, the less (more) the gap between compound interest and non - compound interest