BU283 Lecture Notes - Lecture 1: Interest, Compound Interest, Opportunity Cost
Document Summary
Simple interest and one period future value: quoted rate, nominal rate, or apr (i, the interest rate, assume interest rate is annual unless otherwise stated, simple interest. Is the method of calculating interest in which, during the entire term of the loan, interest is only computed on the original sum bounding. Future values with compounding of a lump sum: compounding the process of leaving your money and any accumulated interest in an investment for more than one year, reinvesting the interest. The value of assets: because there are alternative investment opportunities that generate a return (ex. Present value of a lump sum the time line. Inflows: cash you receive, positive, outflows, cash you spend, negative. Compound average rate: solve for i (interest rate) Non annual compounding: m = number of compounding periods, match the interest rate to length of compounding period, periodic rate = i / m, adjust the number of periods (n x m)
