
A Visual Guide to Simple, Compound and Continuous Interest Rates - brett
http://betterexplained.com/articles/a-visual-guide-to-simple-compound-and-continuous-interest-rates/
======
danteembermage
The trouble with interest rates is that there are effectively two infinite
dimensions worth of possible units a given rate can be in. In order to be
completely accurate, you have to say "A return of X% over Y time periods,
compounded Z times per period" and many of the different available options for
Y and Z actually get used. For example corporate bonds are often Y = 1 year, Z
= 6 months. In a business class, if you were to find the interest rate implied
by the cash flows of the bond, you would probably solve for Y = 6 months Z = 6
months. Then the answer might be required to be in Y = 1 year, Z = 1 year or Y
= 1 year, Z = 6 months depending on the question. It also doesn't help that
for certain values of Y and Z you have ambiguous names like effective annual
yield, nominal yield, yield to maturity, annual percentage rate, annual
percentage yield, etc. So you take this somewhat nasty unit conversion
problem, pretend it doesn't exist, and then mix in a heaping helping of
undergraduate marketing students or average joes doing personal finance and
you get a recipe for confusion.

------
apathy
Terrible. All you need is a plot of the amount of money in your account at
time _t_ color-coded by the method of interest calculation. The $$$ at a given
time (let's use something like a 5-year CD for our ''fixed'' example and a
yearly compounding financial product with dividend/interest reinvestment as
our ''compound'' example) will say it all.

Anyone who can't ''get it'' with that presentation isn't going to benefit from
the verbose explanation presented.

------
Tichy
I gave up after a few paragraphs, perhaps that article makes it seem more
complicated than necessary? I think I already understand the interest rates,
though, so I was not overly motivated to read on.

------
inovica
compound interest is much easier to understand with a $ sign :)

~~~
eru
Seems to be part of a general pattern: For most people math is much easier to
understand with a $ sign.

