Summary Theory of Interest 152

TOI:
1: Equations
K=Capital amount - PV
S=Accumulated amount - FV
i=Effective amount -
i^(m)=Nominal interest per year - I/YN
m=How many times per year will you earn interest -
n= How many years
N= How many interest periods (n x m) -N


+Rand amount (PV, P, FV) you are getting money in your pocket
: Getting a loan
: Withdrawing money from your account
-Rand amount (PV, P, FV) you are giving money from your pocket to somebody
else
: Making a loan payment
: Investing money in an an account


Simple interest:
- No interest on interest
- S = K + (K*i)n
- S = K + (1 + in)
- Not on financial calculator


If i is in ½ year then n must also be in ½ year ( or x2 the years)
n=i

, 2: Compound interest
Compound interest:
- Interest on interest




- Just know the notation
- Use time value of money functions
To find the present value




V notations = the value infront of v is the future value


Second functions payment: m; i^(m); P/YR
Nominal: year Effective: month
i^(12) = 0.10 py # - P/YR = 0.10/12
i^(4) = 0.10 py # - I/YR = 0.10/4
i^(3) = 0.10 py = 0.10/3
i^(2) = 0.10 py = 0.10/2
i^(1) = i = 0.10 py = 0.10/1


number between brackets is how many times a year interest is compounded


Interest during a specific period:
Int = End – Beginning




Beginning End


If there is a V it tells you that it is the future value.