Question 1

What is compound interest?

Accepted Answer

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. It's 'interest on interest' which makes your money grow faster than simple interest. For example, Rs 100,000 at 10% compounded annually becomes Rs 110,000 after year 1 and Rs 121,000 after year 2.

Question 2

How does compounding frequency affect returns?

Accepted Answer

More frequent compounding produces higher returns. Daily compounding earns slightly more than monthly, which earns more than quarterly. For example, Rs 1,00,000 at 10% for 5 years: annually = Rs 1,61,051; quarterly = Rs 1,63,862; monthly = Rs 1,64,531; daily = Rs 1,64,866.

Question 3

What compound interest rate do Nepal banks offer?

Accepted Answer

Nepal banks typically offer compound interest on fixed deposits at rates of 7-11% per annum, compounded quarterly. Savings accounts offer 3-7% compounded semi-annually. Rates vary by bank and deposit tenure. Check with your bank for current rates.

Question 4

What is the compound interest formula?

Accepted Answer

The compound interest formula is: A = P(1 + r/n)^(nt), where A = final amount, P = principal, r = annual interest rate (decimal), n = compounding frequency per year, and t = time in years. The compound interest earned is: CI = A - P.

Question 5

What is the Rule of 72?

Accepted Answer

The Rule of 72 is a quick formula to estimate how long it takes to double your money with compound interest. Divide 72 by the interest rate. At 8% rate, money doubles in approximately 72/8 = 9 years. At 12%, it doubles in 72/12 = 6 years.

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