CHAPTER_4_Compound_interest.docx

# CHAPTER_4_Compound_interest.docx - CHAPTER 4 COMPOUND...

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CHAPTER 4 COMPOUND INTEREST LEARNING OUTCOMES 1. To determine the effective rate and nominal rate 2. To establish the relationship between effective rate and nominal rate 3. To establish the relationship between the two nominal rates 4. To use the concept of compound interest to solve problems relating to investment and loans 1. Vocabulary preview - Compounding; compound amount; compound interest; future value (S); Annual percentage yield; - Compound daily; compound weekly; compound monthly; compound quarterly; compound semiannually; compound annually; number of periods; - Effective rate; nominal rate; Present value or original principal (P); Rate for each period. 2. Compound Interest; Future Value Compounding involves the calculation of interest periodically over the life of the loan (or investment). After each calculation, the interest is added to the principal . Future calculations are on the adjusted principal (old principal plus interest). Compound interest , then is the interest on the principal plus the interest of prior periods.

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