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Compound Interest, Future Value, and Present Value

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Compound Interest, Future Value, and Present Value

1. Explain which of the two options below results in a lower balance after 6 months on a debt of $2500.

Annual simple interest of 12% applied at the end of the 6 months.
A monthly interest rate of 1% applied at the end of each month and before the start of the next month.
Discuss why the two methods result in different results.

In what circumstances might you select one option over another?

2. An increase in value of any collection is not guaranteed for a variety of reasons. If you are a collector, please use your own collection to answer the following questions. If you are not a collector, then use Elvis memorabilia for your answers.

What are some of the factors that could cause the value of your collection to drop in the future?
What questions should an investor ask before investing in anything?
If no new memorabilia can be created with an autograph, how does the idea of scarcity increase the value of an item?

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https://brainmass.com/math/fractions-and-percentages/compound-interest-future-value-present-value-602966

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Answer:

Annual simple interest of 12% applied at the end of the 6 months.
Balance=(2500 * 12 * 6 ) /(12* 100) = 150

A monthly interest rate of 1% applied at the end of each month and before the start of the next month.
Balance=2500*(1.01)^6=2653.80

Discuss why ...

Solution Summary

Compound interest, future values and present values are provided. The circumstances which might be selected to option over another one is given.

$2.19
See Also This Related BrainMass Solution

Compound interest , present value, future values: What amount will the following investments accumulate? What is the present value of the following future amounts?

Please complete the following calculations showing all work.

*Compound Interest - what amount will the following investments accumulate?

1) $5,000 invested for 10 yrs at 10% compounded annually

2). $8,000 invested for 7 yrs at 8% compounded annually

3). $775 invested for 12 years at 12% compounded annually

4). $21,000 invested for 5 years at 5% compounded annually

*Present value - what is the present value of the following future amounts?

1). $800 to be received 10 yrs from now discounted back to the present at 10%

2). $300 to be received 5yrs from now discounted back to the prseent at 5%

3). $1,000 to be received 8 yrs from now discounted back to the present at 3%

4) $1,000 to be recieved 8 yrs from now discounted back to the present at 20%

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