Response 1
Compounding denotes increasing an asset’s value due to interest earned on both the principal and accumulated interest. Having a savings account that is compounded monthly is better than having one that is compounded annually. For instance, compounding savings deposits on a monthly basis has more returns than an annual compounding. In this case, in any single year, the account will be compounded twelve times than once in the case of an account that is compounded annually (Day, 2012). Interest will be received every month across the year and this will realize more interest (gains) than when the compounding is done once.
Response 2
An amortization schedule indicates a table of periodic loan repayment. It shows the principal loan amount and the interest of each payment separately until the loan is fully repaid. Tentatively, the proportion of each payment going to the interest reduces with each payment made and the percentage going to the principal amount increases (Shim, 2012). Also, this tells that as the amount owed reduces with every repayment, the interest also reduces. The amortization table gives borrowers a budgetable and predictable schedule of what they are expected to pay monthly without any payment shock. Based on this table the borrowers can estimate the total cost associated with the loan and make better financial decisions in the future (Day, 2012). It gives detailed insights of the loan that the borrowers are seeking and helps them keep off troubles related with interest burden.
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