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Imagine you have 2 different types of bonds:
Compound:
Let's say bond value is £100 and you get 4% quarterly interest on this investment.
Your bond value after one quarter will be:
Bond Value=£100
Interest Earned: 4%=£4
Total Value=£104
After 2nd quarter, the bond value would be:
Opening Value from quarter 1=£104
Interest Earned: 4%=£4.16
Total Value=££108.16
After 3rd quarter, the bond value would be:
Opening Value from quarter 1=£108.16
Interest Earned: 4%=£4.33
Total Value=££112.49
After 4th quarter(or after a year), the bond value would be:
Opening Value from quarter 1=£112.49
Interest Earned: 4%=£4.50
Total Value=££116.99
Simple
Bond Value=£100
Interest Earned=16%(because it's 4% per quarter and there are 4 quarters in a year)
=£16
Total Bond Value=£116
so bond value after a year is more under Compound than it is under Simple interest bond.
The reason is because simple interest is calculated on one single figure while compound interest is calculated over the opening figure of month,quarter or year.
So compound interest gives more interest income and hence it's better than simple interest bond.
What else can I help you with?
What is the formula for calculating the future value of compound interest bonds?
The formula for calculating the future value of compound interest bonds is: FV PV (1 r)n, where FV is the future value, PV is the present value, r is the interest rate, and n is the number of compounding periods.
What is the deffered interest on HH bonds?
Deferred interest on HH bonds refers to the interest that accrues on these U.S. savings bonds but is not paid out until the bond is redeemed or reaches maturity. Unlike other savings bonds that earn interest and compound over time, HH bonds provide fixed semiannual interest payments, which are taxable in the year they are received. If a bondholder chooses to defer these payments, the interest will accumulate and be paid at a later date when the bond is cashed in. This feature allows for flexibility in managing interest income for tax purposes.
Where do banks typically invest their money in order to maximize compound interest?
Banks typically invest their money in a variety of ways to maximize compound interest, including loans to individuals and businesses, government securities, corporate bonds, and other financial instruments.
Which earns interest stocks or bonds?
bonds
How do bond ratings influence which bonds investors buy?
In simple terms, the better the rating the safer the investment.
What is the formula for calculating the future value of compound interest bonds?
The formula for calculating the future value of compound interest bonds is: FV PV (1 r)n, where FV is the future value, PV is the present value, r is the interest rate, and n is the number of compounding periods.
What is the name of any simple compound with ionic bonds?
NaCl - sodium chloride KCl - potassium chloride
How compound interest is used in real life?
Compound interest is commonly used in financial investments, such as savings accounts, stocks, and bonds. By reinvesting the interest earned, your money grows exponentially over time. For example, retirement accounts benefit greatly from compound interest, as the money you contribute grows over the years through compounding.
Where do banks typically invest their money in order to maximize compound interest?
Banks typically invest their money in a variety of ways to maximize compound interest, including loans to individuals and businesses, government securities, corporate bonds, and other financial instruments.
How market competitive are savings bonds?
Their rates of return are generally comparable to other forms of savings and accrue interest monthly and compound semiannually.
Is a polysaccharide a simple compound?
Yes. Polysaccharides includes cellulose and starch, which are part of carbohydrates.
Which earns interest stocks or bonds?
bonds
Do fixed bonds have higher rates than bonds with fluctuating interest?
Fixed bonds don't necessarily have higher rates than bonds with fluctuating interest. An interesting feature of bonds is that their rates tend to go down as interest rates in general go up. A fixed rate bond will yield the same return no matter what the economy does, but a fluctuating interest bond's rate could go up if the general interest rate goes down or vice versa. So really, the important determining factor of which type of bond performs better is the economy in general.
What compounds is the simple aromatic compound?
The compounds most simple is Benzene because is an organic chemical compound with the molecular formula C6H6.Is a natural constituent of crude oil, and is one of the most basic petrochemicals
What are two ways a compound differs from a mixture?
- a compound contain chemical bonds between atoms - a mixture can be decomposed in components by simple physical methods - a mixture contain two or more compounds
How do bond ratings influence which bonds investors buy?
In simple terms, the better the rating the safer the investment.
What rates do US Saving Bonds offer?
The current interest rates of US Saving Bonds are 0.2 percent for Series EE Bonds. Series I Bonds have interest rate of 1.18 percent. Series HH Bonds have interest rate of 1.5 percent.
