Board 8 > Can someone explain compounding math to me?

(+) Yeah! (+)

Explain it like I am 5 if possible lol.

I'm playing Egg, Inc., and it uses compounding math for it's upgrading process between separate tiers using the example:

100% + 100% = 300%

...but I don't quite understand how the math works or why. I've never been much of a math guy, so it's going over my head.

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There are two types of compounding interest, compound and continuously compounding. Either way, the idea is basically the same: you have your initial investment (called the Principle), which is increased by a percentage after some interval. The next interval, the percentage increase remains the same, but it's now applying to both the principle and the extra amount you added during the first interval. So, suppose you invest 100 dollars, and you get 50% interest at every interval.
Initial Investment: 100
1st Interval: 150
2nd Interval: 225
3rd Interval: 337.5
Etc

If you're using compound interest, the formula is P(1+r/n)^nt, where
P: Principle
R: Rate of Interest (expressed as a percentage, i.e. 5% interest is 0.05, and 100% interest is 1.00)
N: Number of times interest is applied per time period
T: Number of time periods elapsed

If you're using continuously compounding interest, the formula is Pe^rt, where e is just the number e.

I'm not sure what kind of math would give you 300% on the first interval, however.

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Its weirdly phrased but a 100% interest on $100 would give you a total of $200. And then 100% again would give you a total of $400. Which would equal a 300% interest rate on the initial $100

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Dr_Football posted...

Its weirdly phrased but a 100% interest on $100 would give you a total of $200. And then 100% again would give you a total of $400. Which would equal a 300% interest rate on the initial $100

Ok, that makes sense.

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Yeah convert it to multiplication, and remember that the base is always 1

"100% + 100%" = (1 + 100%) * (1 + 100%) = (1 + 1) * (1 + 1) = 2 * 2 = 4 = (1 + 3) = (1 + 300%) = "300%"

Your example is confusing because it's using 100%, but try it with smaller and less even numbers:

"5% + 9%" = 1.05 * 1.09 = 1.1445 = "14.45%"

So it's pretty clear that this extra .45% comes from the compounding math. And the extra 100% in your example works the same way.

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