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Making Cents: It's in Your Interest to Compound

December 08, 1996

One of mathematics' great gifts to the world of finance is compounding--earning interest on your interest, or reinvesting profit. Doubling your money in 10 years does not require an annual 10% return, although at first glance it seems like the 10% times 10 years would be 100%. A "compound annual return," or annualized interest rate of 7.18%, is sufficient. Of course, this magnification works against you if you are in debt.

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