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# The AI (ChatGPT) Stock Investing Handbook: Compound Interest

Here is the response from ChatGPT for the prompt compound interest entered on January 13, 2023.

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. It is the addition of interest to the principal sum of a loan or deposit, so that, from that moment on, the interest that has been added also itself earns interest. It can be thought of as "interest on interest."

The formula for compound interest is: A = P(1 + r/n)^(nt)

Where: A = the future value of the investment/loan, including interest P = the principal investment amount (the initial deposit or loan amount) r = the annual interest rate (decimal) n = the number of times that interest is compounded per year t = the number of years the money is invested or borrowed for

For example, if you invest \$1000 at an annual interest rate of 5% compounded annually, after one year you would have \$1050. In the second year, with an interest rate of 5% on the new balance of \$1050, the interest earned would be \$52.5, for a total of \$1102.5.

It's important to note that the more frequently interest is compounded, the more quickly the interest will grow, thus the more beneficial it is for the depositor or borrower.

Compound interest is a powerful tool that can help grow your savings and investments over time, but it's important to remember that it also works in the opposite direction, and can lead to significant debt if not used responsibly.

Compound Interest and Stock Investing