2007-02-01 12:03:47 · 3 answers · asked by jim l 1 in Business & Finance ➔ Investing
With all due respect, it's not "what doesn't", but usually ONLY fixed income has compounded interest. In the securities industry (e.g. stocks, bonds, commodities, derivatives, trusts, securitized assets), only bonds offer compound interest. Okay, okay - some specialized securitized assets offer compound interest - but most do not. More on that later.
Fixed income is bonds, CDs, money market and other interest bearing securities. MOST of these offer compound interest, but some do not. Annuities, which is a type of bond with an indefinite lifetime, pays a fixed amount of cash every period. The interest does not compound. It is simple interest. Also, compound interest exists only when there is more than one compounding period. Money market and savings accounts compound daily. CDs and corporate bonds usually compound every six months. So if you have a bond or deposit that is in only one period (e.g. a six month corporate bond), there is no compounding - just simple interest.
One can, in theory, securitize any asset. Those assets that spin off cash could, again in theory, have compounding interest. For example, a mortgage is technically a bond with the house as an underlying asset. Likewise, credit card receivables are often securitized and sold off. Both of these securitized assets have a face value that often has compound interest.
Stocks do not pay out interest. They sometimes pay out dividends. The rest of the money they earn and do not pay out as dividends is kept as retained earnings. These retained earnings are then reinvested into the business, often to grow the business bigger. The bigger business then can gain more earnings. Hence, there is a growth effect, where one could describe as "compounding" purely in the dictionary sense of the word - but not in true financial terms.
2007-02-01 14:52:50 · answer #1 · answered by csanda 6 · 0⤊ 0⤋
Better question is which don't: fixed income, ie bonds and annuities; Pretty much everything else is compound, CDs, money markets, savings accounts, savings bonds, stocks, etc
2007-02-01 12:13:45 · answer #2 · answered by wc256764 2 · 1⤊ 0⤋
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2015-02-16 09:59:43 · answer #3 · answered by Starla 1 · 0⤊ 0⤋