ACC 210 Lecture Notes - Lecture 20: Interest
Appendix C notes
• Time value of money
o Decease in value of money due to the passage of time ($100
right now is worth more than $100 one year from now)
o Bc we could invest the $100 today and it would grow to a larger
amount (with interest) in one year
o $100 + ($100 x 10%) = $110
• Simple interest
o Interest earned on the initial investment
• Compound interest
o Interest earned on the initial investment and on previous earned
(but unpaid) interest
• Use compound interest in our problems
o Need to know the number of compounding periods
• Future value
o How much an amount today will grow to be in the future
▪ N=0 is the initial investment
▪ Future value at the end of the first year is $1,100 (1,000 +
1.10)
• Represents 10% growth of a growing base amount
each year
o How to read a future value table
▪ The table contains the future value of $1 invested for
various periods of time (n) and various interest rates (i)
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