How Compound Interest Works
Compound interest earns returns on both principal and previously accumulated returns.
Compounding
The more frequently gains are added to the balance, the more opportunities there are for future gains to compound.
Time
Longer time horizons can have a large effect because growth compounds on a larger base.
Assumptions
Real investments do not usually deliver a fixed return every year.
Practical takeaway
Use the metric that matches the business question you are trying to answer. When several metrics describe different stages of the same workflow, compare them together rather than optimizing one in isolation.
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