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Compound Growth Formula:
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The compound growth formula calculates how an initial amount grows over time when a fixed percentage is applied repeatedly. It's fundamental to understanding investments, savings, and any scenario involving exponential growth.
The calculator uses the compound growth formula:
Where:
Explanation: The formula calculates exponential growth by applying the rate to the increasing balance each period, not just the original amount.
Details: Understanding compound growth is essential for financial planning, investment analysis, retirement planning, and evaluating long-term financial decisions.
Tips: Enter the initial amount in dollars, the annual growth rate as a decimal (e.g., 0.05 for 5%), and the time period in years. All values must be positive.
Q1: What's the difference between simple and compound growth?
A: Simple growth applies the rate only to the initial amount, while compound growth applies the rate to the accumulated total each period.
Q2: How often is the interest compounded in this calculator?
A: This calculator assumes annual compounding. For different compounding frequencies, the formula would need adjustment.
Q3: Can this calculator be used for depreciation?
A: Yes, by using a negative growth rate, though the formula is typically used for positive growth scenarios.
Q4: What's the Rule of 72 and how does it relate?
A: The Rule of 72 estimates how long it takes money to double (72 divided by the interest rate). It's a quick approximation derived from the compound growth formula.
Q5: How accurate is this calculation for real investments?
A: This provides a mathematical projection, but actual investment returns vary year to year and may include fees not accounted for in this simple calculation.