Why compounding interest is so powerful and scary
Read a posting made on Tan Kin Lian & Associates website. May I suggest a different title “The fearsome power of compounding interest and how you should not land on the wrong side“. Embellishments comes from me.
Dear Mr. Tan
This illegal loan was reported in the newspaper and I am wondering what is the effective annual interest rate in the case. I am sure it is not 20%.
“If you want to borrow $1,000, we will give you $800 and you return the sum over five weeks, $200 each time,”>Just curious, is there a excel function that can solve this problem?
The excel function is RATE. Calculation is shown below. The effective interest rate is 7.9% per week, or 5100% p.a. compounded.
The best way for individuals to manage personal finance is to have positive cash flow. One must never end up in a situation where interest on debt is compounded until principal can no longer be repaid.
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. ― Albert Einstein