Posted: September 18th, 2017

The Power—or Curse—of Compounding


• Guide.
Chapter 4 in the M: Finance textbook by Cornett, Adair, and Nofsinger provides an introduction to the main concepts of the time value of money for a single cash flow amount. These concepts are important in finance, because cash flows analyzed in most of finance occur at various periods of time, and adjustments to the cash flow’s value need to be recognized. Review Chapter 4, with particular emphasis on the “Organizing Cash Flows” and “Future Values” sections of this chapter.
For this discussion post, answer the following questions:
Would you prefer to have $100 today or $100 one year from now? Why?
How can compounding build wealth over time?
How can compounding increase debt over time?
Based on your responses to Questions 2 and 3, how can compounding both build wealth and increase debt? Is compounding a power or a curse?

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