Wealth Management
Model compound growth
Why does the same percentage return add more money in later years?
Compounding earns a return on the original balance and on returns already retained.
Future value = principal × (1 + periodic return) raised to the number of periods
₹50,000 × 1.08 × 1.08 = ₹58,320. The second 8% applies to ₹54,000.
₹50,000 at 8% annually becomes ₹54,000 after one year and ₹58,320 after two. Year two adds ₹4,320.
₹50,000 × 1.08 × 1.08 = ₹58,320. The second 8% applies to ₹54,000.
What is the second-year interest if annual return is 10% and the starting amount is ₹50,000?