Both Uses of
compound interest
in
Middlemarch
- Poor Mr. Casaubon had imagined that his long studious bachelorhood had stored up for him a compound interest of enjoyment, and that large drafts on his affections would not fail to be honored; for we all of us, grave or light, get our thoughts entangled in metaphors, and act fatally on the strength of them.†
Chpt 1
- I'm of sound mind—can reckon compound interest in my head, and remember every fool's name as well as I could twenty years ago.†
Chpt 1 *
Definition:
-
(compound interest) interest calculated on both the initial amount and on previous interest earned
(Example: $100 invested at 10% interest would earn $10 per year, but if interest is compounded annually, it would earn $11 the second year.)editor's notes: The more frequently interest is compounded, the more it will add up. Before computers were common, banks typically compounded balances each quarter. Today, it is easy to compound daily or even instantaneously (that is every instant); though increments in compounding frequency bring diminishing returns.
To compare rates with different compounding frequency, rates are often converted to an "Effective Annual Rate" (that is the equivalent rate if compounding were done annually); though the definition of this term is not universal.
When looking at loans, United States law creates a universal term, "Annual Percentage Rate (APR)" that converts a loan to it's equivalent cost if it were compounded annually. The APR also adjusts upward to reflect lender fees.