01:640:106 Lecture Notes - Lecture 8: Credit Union, Effective Interest Rate, Growth Factor
20 Oct 2016
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In the equation fv = pv(1+i)^n, the expression (1+i)^n is called the growth factor. In the equation fv = pve^rt, the expression e^rt is called the growth factor. You can use the growth factor to nd the percentage of increase (or decrease) by subtracting 1. Example: 2% annual compound interest for 20 years leads to a growth factor of (1. 02)^20 = 1. 48595. The amount of growth (in decimal form) is 1. 48595 - 1 = . 48595, or. Example: a 1% annual population decline for 50 years leads to a growth factor of (0. 99)^50 = 0. 6050. The amount of growth (in decimal form) is 0. 6050 - 1 = -. 0. 3950 or. 39. 50% growth (which we usually call 39. 50% decline) If often looks like you can just chop the 1 off the growth factor and multiply by 100 to. Nd the percentage increase, but thats not necessarily true. We often talk about growth factors over some time horizon, such as a 6-year growth factor.
