Question 889702
Note: when you copy and paste from a program where there is a variable, you need to manually enter the variable.
.
Let's say that Bob is depositing $2,000 into an account that pays 8% interest compounded annually.  How much will he have after 5 years?  (You can adjust the numbers; this is the process.)
.
After the first year, Bob has 2000 * 1.08 = 2160
After the second, 2160 * 1.08 = 2232.80
Third, 2232.80 * 1.08 = 2519.42
Fourth, 2519.42 * 1.08 = 2720.97
Finally, after the fifth year, 2720.97 * 1.08 = 2938.65
.
You'll notice that it's not simply 8% * 5 years.  That's because Bob is earning interest on the interest.  The same concept applies with credit cards and student loans, only in reverse -- it's how people get deeply in debt.