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Maksim231197 [3]
4 years ago
8

_____ refers to a process by which you earn interest not only on the money you directly invest but also on the interest you've e

arned in previous years.
Business
1 answer:
makvit [3.9K]4 years ago
7 0

Answer:

Compounding (Compound Interest)

Explanation:

Compounding (Compound Interest) refers to a process by which you earn interest not only on the money you directly invest but also on the interest you've earned in previous years.

Ex: $100 deposited @10% pa interest compounding annually for 2 years. Interest at 1st year end : 10% of 100 = 10 & Total Amount : 100 + 10 = 110.  Interest at 2nd year end : 10% of 110 = 11 & Total Amount : 121 .

The above case shows how interest in 2nd period is calculated not only on principal amount $100, but also on $10 interest earned in previous period. So, interest in 2nd period is calculated as  return percentage on 100 + 10 = 110.

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