1. What is Money Market Return?

Money Market Return is the earnings generated from investing in money market instruments, which are short-term, highly liquid investments. This calculator helps estimate the return on principal invested at a fixed annual interest rate over a specified time period.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( \text{Principal} \) — Initial investment amount ($)
• \( \text{Rate} \) — Annual interest rate (decimal)
• \( \text{Time} \) — Investment period (years)

Explanation: The formula calculates the total return by compounding the interest annually and then subtracts the original principal to show just the earnings.

3. Importance of Money Market Return

Details: Calculating money market returns helps investors compare investment options, understand potential earnings, and make informed decisions about short-term investments.

4. Using the Calculator

Tips: Enter principal in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be valid (principal > 0, rate ≥ 0, time > 0).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest calculates earnings only on the principal, while compound interest earns "interest on interest" by reinvesting earnings.

Q2: How often is interest compounded in money markets?
A: While this calculator assumes annual compounding, actual money market accounts may compound daily, monthly, or quarterly.

Q3: Are money market returns guaranteed?
A: Unlike CDs, money market returns can fluctuate with interest rate changes, though they're generally stable.

Q4: What are typical money market rates?
A: Rates vary but are typically higher than regular savings accounts, often tracking short-term interest rates.

Q5: Is there risk in money market investments?
A: While very low risk, money markets aren't FDIC-insured (unless through a bank) and can be affected by interest rate changes.