Answer:
Compounding (Compound Interest)
Explanation:
Compounding (Compound Interest) refers to a process by which you earn interest not only on the money you directly invest but also on the interest you've earned in previous years.
Ex: $100 deposited @10% pa interest compounding annually for 2 years. Interest at 1st year end : 10% of 100 = 10 & Total Amount : 100 + 10 = 110. Interest at 2nd year end : 10% of 110 = 11 & Total Amount : 121 .
The above case shows how interest in 2nd period is calculated not only on principal amount $100, but also on $10 interest earned in previous period. So, interest in 2nd period is calculated as return percentage on 100 + 10 = 110.
