Describe the theory of interest and discuss the decision-making concept it how it applies to analyzing cost and return on long-term investment.© BrainMass Inc. brainmass.com June 4, 2020, 2:14 am ad1c9bdddf
A dollar received today is worth more than a dollar received a year later. This is true because if one puts one dollar in the bank now, the dollar will earn interest and the investor will obtain more than a dollar in one year. "Since dollars today are worth more than dollars in the future, cash flows that are received at different times must be weighed differently" (Brewer, Garrison & Noreen, 2007, p. 520). The interest that banks give to investors is expressed in percentages and may be offered annually or semi-annually. The initial amount that investors put in the bank is called the principal amount and is usually denoted by the letter P (Anonymous, n.d, p. 2). The sum of the principal amount and any earned interest is referred to as the compound amount denoted by P1. The relationship between the compound ...
This solution describes the theory of interest and discuss the decision-making concept and how it applies to analyzing cost and return on long-term investment.