Investment paying 12%pa - is it too good to be true?

Q.  I recently saw an investment for a sporting club raising funds that advertised 12% per annum compounded, calculated annually (over 5 years in unsecured notes.)  I have no intention of investing, but the return is interesting and seems too good to be true. Have I misunderstood the 12% pa compounding annually.

Josie’s answer:  Compounding annually means that they credit interest 12% interest on 30 June and the following year, they will pay 12% on the original investment, plus the 12% paid the previous year … and so on it goes until the end of year 5. Read more