Fed Helps Market Go Up

The Federal Reserve lowered short-term interest rates for the sixth time in the last six months as it continues to attempt to strengthen the economy. The central bank shortened its federal funds rate by 3/4 of a percentage point to 2.25% for overnight loans and left the option for future cuts in the upcoming months. This cut was the biggest one-day cut in decades, and investors were expecting a full percentage point in regards to the possible recession and financial crisis that the country is facing right now. Members of the Fed's policy-making committee expressed dissatisfaction over this cut, siding with an even smaller cut while conveying concerns over possible recession. Some view this as a potential way for the Fed to ease the economy while others guessed this cut was particularly low due to the Fed's alternative to get away from zero percent. The Fed is also cooperating with the European Central Bank, the Bank of Canada and the Swiss National Bank, to loan investment banks money in exchange for debt. This move is essential in order to help create a market for assets that investors nowadays are scared to buy because of the huge decline in stocks that have been experienced in the past weeks.

Compound Interest and the Rule of 72

When money is borrowed from a bank, you pay interest. Interest is a fee charged for borrowing the bank's money, it is a percentage charged on the principle amount for a period of usually a year. Put in simpler terms, compound interest can be looked as interest paid on the original principal and on the accumulated past interest, so it builds up on both counts. The common formula for compound interest is A=P(1+r)n, these variables may differ but all mean the same thing
P= the principal or initial amount borrowed or deposited
r= annual rate of interest
n= amount of years money is deposited or borrowed
A= total accumulated after n years, including interest

Using the compound interest calculator, if you were to save a $1 a day, approximately $365 p/y and ignoring the rule of leap years, from the age of 18 to 65, which is 47 years, at 8% interest, you will have $178,533.24.

The 'Rule of 72' a simplified way to determine how long an investment will take to double or halve, given a fixed annual rate of interest. Dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself. It is a great meantal math shortcut to estimate the effect of any growth rate, from quick financial calculations to population estimates. The 'Rule of 72' is most accurate when dealing with low rates of returns, as such, when the rates of return get higher or increase the estimate becomes less precise. The formula for the 'Rule of 72' is:
years to double= 72/ interest rate