Business Finance In Chapter 9 we begin our study of the time value of money. A d

Question

Business Finance

In Chapter 9 we begin our study of the time value of money. A dollar today is worth more than a dollar one year from now. However, if we take a dollar today and invest it in an interest bearing instrument, it will be worth more one year from now. If we factor in compound interest, it will grow even more. Warren Buffet said "My wealth has come from a combination of living in America, some lucky genes, and compound interest". Discuss the concept of compound interest and the effect it can have on your future as a business professional. Is there application for your personal finances as well?

Explanation / Answer

Compound interest is the amount of interest compounded on the principal for the first year and compounded on the whole amount of principal+interest of the second year and so on. This results in a higher growth of the amount. As a business professional, an amount can always be better planned to invest to earn compound interest which can be used and further compounded. Business always looks for opportunities to increase their revenues and the excess cash amount can be invested to fetch compound interest. The same can be applied to personal finances as well in intelligently investing for better growth.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.