# Interest, Annuities, and Amortization.

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

https://brainmass.com/business/interest-rates/interest-annuities-amortization-286466

#### 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.