Topic: Compound Returns Over Time
Correct Answer: #1, $11,046
It’s not as simple as just taking 1% of $10,000 and adding it in 10 times. That’s because interest compounds over time and you earn additional returns on the new money you’ve earned each year.
So, you’re actually earning 1% on $10,100 at the start of year two instead of on your original $10,000 … and so on, and so on, for a decade.
The idea of compound interest is important in regards to returns, but also expenses … because expenses compound over time, too.
(Note: This figure assumes compounding interest once a year; more frequent compounding can affect results in a small way.)
