Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:A bank made a farmer a loan of $1,000 at 16% for three years compounded annually. Find the future value and the compound interest paid on the
loan. Compare the compound interest with simple interest for the same period.
Future value=$
(Round to the nearest cent as needed.)
Expert Solution
Step 1
Value or worth of money changes with passage of time.
This is due to a theoretical concept in finance called time value of money.
Now the reason why worth of money changes with passage of time is that money has the power to earn interest.
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