Compounding
Interest earned on an investment itself earning interest through reinvestment.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Real rate of returnThe return on an investment after the effect of inflation has been removed — what the money actually buys more of, as against the nominal percentage the product advertises.
- Time value of moneyThe principle that the same sum of money is worth different amounts at different points on a timeline, because money held today can be invested and because inflation erodes what it will buy.
Where this is taught
Free preparation for NISM Series XVIIRelated terms
- PMT functionThe spreadsheet function that converts a target corpus into the fixed periodic saving needed to reach it — the arithmetic behind every "how much should I invest a month" answer.
- Effective yieldThe annual rate that would leave an investor with the same amount after one year as the quoted nominal rate does once its more frequent interest payments are taken into account.
- Time value of moneyThe principle that the same sum of money is worth different amounts at different points on a timeline, because money held today can be invested and because inflation erodes what it will buy.
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