Excel L2.xlsx - Fig 5.2 Future Value of \$100 at 10 Interest earned Year 1 2 3 4 5 Total i PV Value at beginning of year Simple interest \$100.00 \$10.00

# Excel L2.xlsx - Fig 5.2 Future Value of \$100 at 10 Interest...

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Fig. 5.2 Future Value of \$100 at 10% Interest earned Year Simple interest 1 \$100.00 \$10.00 \$0.00 \$10.00 \$110.00 2 \$110.00 \$10.00 \$1.00 \$11.00 \$121.00 3 \$121.00 \$10.00 \$2.10 \$12.10 \$133.10 4 \$133.10 \$10.00 \$3.31 \$13.31 \$146.41 5 \$146.41 \$10.00 \$4.64 \$14.64 \$161.05 Total \$50.00 \$11.05 \$61.05 i 10.00% PV \$100.00 Value at beginning of year Interest on interest Total (compound) interest Value at end of year

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Simple Interest vs Compound Interest.What is the difference?
Demo Prob 5.1 Compound Interest Simple Interest FV = PV + (P * i * n) PV \$1,000 PV \$1,000 i 10.00% i 10.00% m 1 m 1 n 100 n 100 FV ### FV \$11,000.00 nterest Earned ### nterest Earned\$10,000.00 Difference ### FV = PV ( 1 + i / m ) (n * m) FV with Compounding of Future Value. How w calculate the amount o interest?

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once per year. The components would you of interest-on-
PV \$10,000 \$10,000 i 5% 5% m 4 365 n 5 5 FV ### ### Difference \$19.66 Demo Prob 5.2 (Varying m ) FV = PV * (1 + i / m) n * m FV with compounding more than once per year. Vary m.

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Decision-Making Example 5.1 Formula Bank A B C D PV \$10,000 \$10,000 \$10,000 \$10,000 i 7.00% 7.00% 6.80% 6.85% m 1 4 12 365 n 5 5 5 5 FV ### ### ### ### Difference \$122.26 \$10.48 \$58.67 Decision-Making Example 5.1 Formula Bank A B C D PV \$10,000 \$10,000 \$10,000 \$10,000 i 7.00% ### ### ### m 1 4 12 365 n 5 5 5 5 FV ### ### ### ### Difference \$0.00 \$0.00 \$0.00 FV = PV * ( 1 + i / m ) (n * m) FV = PV * ( 1 + i / m ) (n * m) Now…w alternati frequen 7%p.a a

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