Business mathematics week 1 simple interest
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This document discusses 5 types of compound interest transactions: (1) simple interest with a flat rate, (2) compound interest calculating the future value of a present value, (3) the reciprocal of #2 calculating the present value of a future value, (4) compound interest on regular deposits calculating the future value of an annuity, and (5) compound interest relating the present value of a loan to future payments or the present value of an investment to its future annuity returns. It also provides the formula for simple interest and discusses using general problem solving techniques to solve most simple interest questions by working out one year's interest.
Business mathematics week 1 simple interest
- 1. Business Mathematics 5 types of transactions / questions (1)Simple Interest – flat rate of interest (2)Compound Interest – invest a single amount and see what it will grow to – PV Present value grows to FV Future Value (3)Compound Interest – the reciprocal of (2) above – someone promises to give you a single amount at a future date FV – what is it’s value today – PV – present value (4)Compound Interest – Deposit a regular amount – annuity and see what it will grow to FV (5)Compound Interest – Receive a single amount today (Loan) what future income payments will be the equivalent of this loan amount OR Invest a single amount today what future income stream (annuity) should I expect to receive from this investment
- 4. Your textbook uses the following formula but I think it is best to just apply general problem solving techniques. If we can work out one year’s interest we can solve most simple interest questions
- 7. Answer
- 15. Interest = Answer = $10,000 + 591.78 = 10591.78
- 19. Effective rate = 2 x N x I / (N+1)