BUSI 2401U Lecture Notes - Lecture 2: Interest, Compound Interest, Investment
Document Summary
The valuation principle: the foundation of financial decision making. Fv = pv(1 + r)t: fv = future value, pv = present value, r = period interest rate, expressed as a decimal, t = number of periods, future value interest factor = (1 + r)t. Simple interest earn interest on principal only. Compound interest earn interest on principal and reinvested interest. Rearrange to solve for pv = fv / (1 + r)t. Often we will want to know what the implied interest rate is in an investment. Rearrange the basic pv equation and solve for r: fv = pv(1 + r)t, r = (fv / pv)1/t 1.
