Larry and Beth each decided to put $1,000 into an investment for 10 years. Larry selected an investment which had a rate of compound interest of 6% while Beth chose a rate simple interest of 4%. At the end of the 10-year period, Larry’s investment had grown to $1,743.21 while Beth’s only grew to $1,400. The example above shows that compound interest is more powerful than simple interest in terms of investment over time.
This is because it can generate interest on both the initial deposit and any extra amounts that are earned over time. It allows for money to grow much faster than other options. Hence why understanding/applying principles related Time Value Money (TVM) can prove invaluable when trying maximize gains regardless situation faced.
In conclusion, by looking at Larry & Beth’s example one can clearly see how important role TVM plays when dealing with investments since it offers numerous advantages over traditional methods plus allows individuals plan appropriately all times thus ensuring maximum profit achieved moving forward.