Simple and compound interest

What this note covers

1. Separate principal, rate and time
2. Track compound growth period by period
3. Align nominal rate and compounding frequency
4. Apply tax to earnings, not principal
5. Deflate a future dollar amount for inflation
6. Compare lump-sum offers on a common basis
7. Worked lump sum: simple growth, compound periods, tax and purchasing power
8. Worked offer comparison: different quoted rates and timing assumptions

8 sections · 10 key terms & formulas · 6 common mistakes