FINA 2700 Chapter Notes - Chapter 5: Interest, Compound Interest, Cash Flow
15 Jul 2019
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Simple interest: interest is earned only on the original investment. Example: you invest in an account paying simple interest at the rate of 6% per year. Compound interest: interest is earned on the value of money that is in the account at the beginning of the period. Thus, previous period"s earned interest can also earn interest on the next period. You invest in an account paying compound interest at the rate of 6% per year. You invest at t=2 in an account paying compound interest at the rate of 5% per year. Present values: present value is the value today of a future cash flow, how much do you need to invest today into an account paying compound interest at the rate of. 5% per year, in order to receive . 45 at the end of eight years: simply invert the fv formula to get the pv formula. You have been offered million five years from now.
