Financial operation that makes it possible to renew and increase saved capital.
A financial investment is an activity that makes it possible to accumulate both a capital and the compound interest that this capital generates based on the terms of this investment.
The return on an investment can be found using a calculation that accounts for its duration.
The return on an investment can be found using a calculation that accounts for its duration.
Formula
For a periodic investment of \(C_0\) at a periodic interest rate \(i\) during \(n\) periods, the value \(C_n\) obtained at maturity is given by this formula:
\(C_n = C_0 · \dfrac{(1 + i)^n \space – 1}{i}\)
Example
A person can invest an amount \(C_0\) of $1000 per year with the goal of amassing a retirement fund. Because the interest is also reinvested in this retirement fund, it contributes to increasing the value of the fund. If the bank offers the person an annual compound interest rate of 6%, the value \(C_n\) of the fund after n years will be given by this relationship:
\(C_{10} = 1000 · \dfrac{(1 + 0.06)^n \space – 1}{0.06}\).
Therefore, after 10 years, the actual value of the fund will be $13 180.79.