Quant04. Simple and Compound Interest Including Annuity – Applications

CPTSuccess Revision Notes – Quantitative Aptitude Chapter 4. Simple and Compound Interest including Annuity – Applications

Chapter 4. Simple and Compound Interest including Annuity – Applications ,[object Object],Time value of Money Opportunity Cost Inflation Liquidity Preference Risk Factor ,[object Object]

Interest – is the price paid by a borrower for the use of a lender’s money

Principal – is the initial value of lending

Rate of Interest – the percentage rate at which the interest is charged for a defined length of time for use of principal

Accumulated Amount – is the final value of an investment© Revision Notes – Quantitative Aptitude CPTSuccess www.cptsuccess.com

Chapter 4. Simple and Compound Interest including Annuity – Applications ,[object Object],I = P.I.t A = P + I = P (1 + i.t) I = A – P Where A = Accumulated Amount P = Principal i = annual interest rate in decimal I = Amount of Interest t = time in years © Revision Notes – Quantitative Aptitude CPTSuccess www.cptsuccess.com

Chapter 4. Simple and Compound Interest including Annuity – Applications ,[object Object],An = P (1 + i)n where, i = Annual rate of interest / Number of conversion periods per year n = number of periods An = Accumulated Amount P = Principal Compound Interest = An – P = P [(1+i)n – 1] © Revision Notes – Quantitative Aptitude CPTSuccess www.cptsuccess.com

Chapter 4. Simple and Compound Interest including Annuity – Applications ,[object Object],I = P.E.T. Where I = amount of interest E = Effective rate of interest in decimal T = time period P = Principal Amount E = (1+i)n – 1 © Revision Notes – Quantitative Aptitude CPTSuccess www.cptsuccess.com

Chapter 4. Simple and Compound Interest including Annuity – Applications ,[object Object], ,[object Object]

Amount paid (received) must be constant over the period of annuity, and

Time interval between two consecutive payments (or receipts) must be the same© Revision Notes – Quantitative Aptitude CPTSuccess www.cptsuccess.com

Chapter 4. Simple and Compound Interest including Annuity – Applications ,[object Object],© Revision Notes – Quantitative Aptitude CPTSuccess www.cptsuccess.com

Chapter 4. Simple and Compound Interest including Annuity – Applications ,[object Object],Future value is the cash value of an investment at some time in the future. F = C.F. (1 + i)n where F = Future Value CF = Single Cash Flow © Revision Notes – Quantitative Aptitude CPTSuccess www.cptsuccess.com

Chapter 4. Simple and Compound Interest including Annuity – Applications ,[object Object],If A be the periodic payments the future value A(n i) of the annuity is given by A(n i) = ,[object Object],Calculating the future value of the annuity due involves two steps ,[object Object]

Quant04. Simple and Compound Interest Including Annuity – Applications

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