What is an Interest Rate?•To understand the concept of an interest rate we need to familiarize ourselves with the concept of present value. •A dollar paid to you one year from now is less valuable than a dollar paid to you today.•That is because a dollar received today can be saved and earn interest.
Future Values23Let = .10In one year $100 X (1+ 0.10) = $110 In two years $110 X (1 + 0.10) = $121or 100 X (1 + 0.10)In three years $121 X (1 + 0.10) = $133or 100 X (1 + 0.10)In years$100 X (1 + )nini
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