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A loan can be amortized into equal periodic payments

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Unformatted text preview: rtin has $10,000 that she can deposit in any of three savings accounts for a 3-year period. Bank A compounds interest on an annual basis, bank B compounds interest twice each year, and bank C compounds interest each quarter. All three banks have a stated annual interest rate of 4%. 170 PART 2 Important Financial Concepts TABLE 4.9 Summary of Key Definitions, Formulas, and Equations for Time Value of Money Definitions of variables e exponential function EAR effective annual rate FVn FVAn i 2.7183 future value or amount at the end of period n future value of an n-year annuity annual rate of interest m number of times per year interest is compounded n number of periods—typically years—over which money earns a return PMT PV PVAn t amount deposited or received annually at the end of each year initial principal or present value present value of an n-year annuity period number index Interest factor formulas Future value of a single amount with annual compounding: FVIFi,n i)n (1 [Eq. 4.5; factors in Table A–1] Present value of a single amount:...
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