Summary
Summary Theory of Interest 152 study guide
- Institution
- Stellenbosch University (SUN)
Comprehensive summary of Units 1-3 covered in the textbook and lectures
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, U SKE ALL AMOUNTS BACK TO THE SAME
POINT IN TIME
1 . Z
NOMINAL AND EFFECTIVE INTEREST RATES :
INTEREST CONCEPTS SIMPLE AND COMPOUND INTEREST :
, i
2023 202
BASIC CONCEPTS
i x Y
:
Principle amount
S :
Accumulated amount or
·
OM
inter
:
i Effective annual interest rate .
im :
Nominal annual interest rate .
m
, months
&
1
ACCUMULATED
. 3
AMOUNTS
,
PRESENT VALUES AND RELATED QUANTITIES 0 & months
·
11 months
SIMPLE INTEREST
S =
in
Interest in n
years :
..
xi"yi2i5
Sin
CORRESPONDING NOMINAL AND EFFECTIVE INTEREST RATES :
COMPOUND INTEREST : imm
Sin left m
S D 3 C
i m
Si
·
*
used todenote ing fac tor in
M
im
m
·
M m
Discount
CONTINUOS COMPOUNDING
quoted
Interest
paid in advance is
i s
as a rate
· m becomes infinitely large
I" becomes r
u D
S
p
.
u . pa
Mr
· S 2
~
EULCRS CONSTANT
i p . u .
pa
Find r with - ·
D
or i
S
S
i : 00
= UTURE VALUE S PRESENT VALUE
ex DISCOUNT D
?
yearly I that bank ear ned on bill
O
M
r
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