Offer your thoughts or opinion on the input financial query or topic using your financial background.

Can you explain “time value of money” and “compound interest” and provide examples of each?
Compound interest means that the interest in each time period is calculated taking into account previously earned interest and not only the initial sum. Thus, if you had $1000 and invested it so that you'd earn 5% each year, than if you would withdraw the earnings each year you in 30 years you would earn 0.05*30*1000 = $1500, so summarily you'd have $2500, or 150% profit. However, if you left all the money to earn interest - including the interest money - then at the end of 30 years you'd have $4321 - or 330% profit.  This is why compound interest is so important - the interest on the earned interest makes money grow significantly faster. On the other hand, the same happens if you owe money - the interest on the money owed is added to the initial sum and so the whole sum owed grows quicker.  Compound interest is also important when calculating interest by time periods. For example, if you are told the loan accumulates 1% interest monthly, you may think it's 12% yearly. However, it is not so, since monthly interest is compounded - i.e., in February the addition not only February's 1% but also 1% on 1% from January, etc. - the real interest is 12.68% yearly. Thus, it is always useful to know how interest is compounded - both for loans and investments - daily, monthly, yearly, etc.