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# Interest, Annuities, and Amortization.

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Please provide the formulas and 2 solved examples using the formulas for each of these topics:

Simple interest
Compound interest
Future value of an annuity
Present value of an annuity
Amortization

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#### Solution Preview

Please provide the formulas and 2 solved examples using the formulas for each of these topics:

Simple interest (I) = Prt
Where:
P is the principal amount
r is the annual rate
t is the time in years.

Examples:

1. Suppose you locate a two-year investment that pays 14% per year. If you invest \$325, how much of this is simple interest?

I = Prt = (325) (0.14) (2) = \$91.
2. Mary invest \$4,000 for 3 years at 5% per year. How much of this is the simple interest?

I = Prt = (4,000) (0.05) (3) = \$600.

Compound interest:

A = P (1 + r)n
Total interest earned: A - P.
Therefore, compound interest is total interest - simple interest.

Where:
A is the amount of money accumulated after n years, including interest.
P is the principal (the initial amount you borrow or deposit).
r is the annual rate of interest (percentage).
n is the number of years the amount is deposited or borrowed for.

Examples:
1. In the previous example (number 1), how much is compound interest?

A = 325 (1 + 0.14)2 = \$422.37
Total interest earned: \$422.37 - \$325 = \$97.37
Therefore, compound interest is \$97.37 - \$91 = \$6.37
2. In the previous example (number 2), how much is compound interest?

A = 4,000 (1 + 0.05)3 = \$4630.50
Total interest earned: \$4630.50 - \$4,000 = \$630.50
Therefore, compound interest is \$630.50 - \$600 = \$30.50

Future value of an annuity (FVAN) = PMT [((1 + I)N - 1) / I]

Where:
PMT is the annual fixed payment.
I is the ...

#### Solution Summary

This solution is comprised of detailed explanation and step-by-step calculation of Simple interest, Compound interest, Future value of an annuity, Present value of an annuity, and Amortization.

\$2.49