Reinvestment is the process of using returns from an investment to purchase additional shares or units of the same or a different investment. This strategy allows investors to take advantage of compound interest, potentially accelerating the growth of their investment over time.

The formula for calculating compound interest, which is the basis for reinvestment calculations, is:

\[A = P(1 + \frac{r}{n})^{nt}\]Where:

- \(A\) = Final amount
- \(P\) = Principal amount (initial investment)
- \(r\) = Annual interest rate (in decimal form)
- \(n\) = Number of times interest is compounded per year
- \(t\) = Number of years

- Determine the principal amount (P), annual interest rate (r), compounding frequency (n), and investment term (t).
- Convert the annual interest rate to decimal form (divide by 100).
- Divide the annual rate by the compounding frequency to get the periodic rate.
- Multiply the compounding frequency by the number of years to get the total number of compounding periods.
- Apply these values to the compound interest formula.
- Calculate the final amount (A).
- Subtract the principal from the final amount to determine the interest earned.

Let's calculate the reinvestment returns for an initial investment of $10,000, with an annual interest rate of 7%, compounded monthly, over 10 years:

- \(P = \$10,000\), \(r = 7\% = 0.07\), \(n = 12\) (monthly compounding), \(t = 10\) years
- Periodic rate = \(0.07 \div 12 = 0.005833\)
- Total compounding periods = \(12 \times 10 = 120\)
- \(A = 10000(1 + 0.005833)^{120} = \$20,097.57\)
- Interest earned = \$20,097.57 - \$10,000 = \$10,097.57

The green portion represents the principal ($10,000), and the blue portion represents the interest earned through reinvestment ($10,097.57).

We can create a free, personalized calculator just for you!

Contact us and let's bring your idea to life.

Category
Loan
Tax
Interest
Investment
Profit & Loss
Credit and Debt Planning
Algebra
Statistics
Matrix
Number
Plane Geometry
Solid Geometry
Trigonometry
Construction
Analytic Geometry
Math graphing
Color Converter
Numeral system
Unit
Energy
Temperature
Power
Frequency
Charge
Voltage
Lighting
Classic Physic
Electronic
Engineering
Chemistry
Electrical
Date
Time
Commemorative days
Observance days
Health and medicine
Family and Fun
Weather
Webmaster tools