Crap!!! I totally fucked up and forgot to address another aspect of my original answer that I gave Poe. After this part I will totally shut up on this thread!!! I promise.
Okay Poe, the other part to my original answer up in the thread that I didn?t address was compounding. I?m referring to the compounding of the interest earned. If the interest compounds daily then here is how REAL numbers might look for a 7 day period in that money market acct using $100,000 at a 5.04% yield.
So, going back to my original example:
Original deposit amount: $100,000
Average yield: 5.04%
From my above (up higher in the thread) example we saw that $100,000 yielded a daily interest of $13.81/day.
So what we are going to do is then take that daily interest and simply add it to the prinicipal ($100,000) but it will actually grow a little bit day by day.
Day 1: $100,000 X 5.04% = $5,040. $5,040/365 = **$13.81/**day so take that $13.81 & add it to your original $100,000 so now we have $100,013.81 in the acct. now day 2 comes up but now we must add that 5.04% interest on the new principal amount which as we c is now $100,013.81.
So?.
Day 2: $100,013.81 x 5.04% = $5,040.70. $5,040.70/365 = **$13.81**/day so we take that $13.81 & add it to our new principal. $100,013.81 + $13.81 = $100,027.62 (new principal).
Day 3: $100,027.62 x 5.04% = $5,041.39. $5,041.39/365 = **$13.81**/day so we take that $13.81 & add it to our new principal. $100,027.62 + $13.81 = $100,041.43 (new principal)
Day 4: $100,041.43 x 5.04% = $5,042.09. $5,042.09/365 = **$13.81**/day so we take that $13.81 & add it to our new principal. $100,041.43 + $13.81 = $100,055.24 (new principal)
Day 5: $100,055.24 x 5.04% = $5,042.78. $5,042.78/365 = **$13.82**/day so we take that $13.82 & add it to our new principal. $100,055.24 + $13.82 = $100,069.06 (new principal)
Day 6: $100,069.06 x 5.04% = $5,043.48. $5,043.48/365 = **$13.82**/day so we take that $13.82 & add it to our new principal. $100,069.06 + $13.82 = $100,082.88 (new principal)
Day 7: $100,082.88 x 5.04% = $5,044.18. $5,044.18/365 = **$13.82**/day so we take that $13.82 & add it to our new principal. $100,082.88 + $13.82 = $100,096.70 (new principal)
So in 7 short days you simply placed $100,000 into an acct and 7 days later you now have $100,096.70. Now imagine if you had that money in there much longer than just one week. Imagine if that money was left in there for at least a couple of years. Well, we know from the example that the return would be at least $10,000 if it was left in the money market for at least 2 years (at those rates aforementioned).
Just a little food for thought. You would have made over $10,000 had you left your money in there for 2 years. Now, just think of how much the banks are making on this $100,000 that you deposited with them and then they loaned out that money at a higher interest rate. It?s pretty cool but without this system our banking system would be??well, I really don?t know what would happen without banks being able to hold money and then lend it out at higher rates. It?s that damn Lion King (yeah I saw it) saying?..?It?s the circle of life??and it really is with respect to this aspect falling into its place in the banking & financial markets.
That is the power of compounding and that is why the rich are able to capitalize on this beautiful subject in devastating (a beautiful devastating) ways.??wtf??go 2 bed brownie!!! Nite! Holla!!!
