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Stocks 102: Make Compound Interest Work for You

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1.
By investing often while you earn compound interest, you can increase your total return. This is possible because frequent investing increases your _______.
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Principal. Frequent investing adds to the size of your principal, thus magnifying your return.
2.
Compound interest is _______.
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Interest paid on both interest earned and principal. Because of the way compound interest works, your earnings grow faster than they would by simple interest alone.
3.
Which of the following are not tax-sheltered investments you can use to compound interest?
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Municipal bonds. Tax-deferred retirement plans and deferred annuities provide compounding interest, but municipal bonds pay only simple interest. However, you can get the effect of compound interest with a municipal bond fund if you reinvest the dividends.
4.
The _______ you invest your money, the _______ compounding can work for you.
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Earlier / More. Compounding expands your money greatly over time.
5.
The Rule of 72 states that if you divide 72 by a given interest rate, you will learn how many years it will take for an investment to double. How long would it take for an investment with an interest rate of 4% to double?
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18 years. Dividing 72 by 4 gives you 18.