![]() If we break it down, it seems we earn 1 gold a month: 6 for January-June, and 6 for July-December. It’s simple enough: we get 12 coins a year. In the beginning, you might have had 100 gold coins and were paid 12% per year (percent = per cent = per hundred - those Roman numerals still show up!). Like Roman numerals and hieroglyphics, our first system “worked” but wasn’t quite ideal. n = number of time periods (i.e., 3 years)Īnd a quick calculator to convert APR to APY: Why the fuss?.P = principal, your initial investment (i.e., \$1,000).Here’s our cheatsheet: TermĬhanges each year (stock market, inflation)Ĭhanges each month/week/day (savings account)Ĭhanges each instant (radioactive decay, temperature)Īnnual Percentage Rate (compounding not included)Īnnual Percentage Yield (all compounding effects included) Understanding these concepts will help understand finance (mortgages & savings rates), along with the omnipresent e and natural logarithm. ![]() This post takes an in-depth look at why interest rates behave as they do. Interest rates are confusing, despite their ubiquity.
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