Question - Building on these definitions, if I ask you in terms of an investment vs. a long term liability such as a car loan. Can you tell me which type of interest would you rather pay on: 1) The investment: Simple or Compound? 2) Car loan: Simple or Compound
Question - Building on these definitions, if I ask you in terms of an investment vs. a long term liability such as a car loan. Can you tell me which type of interest would you rather pay on: 1) The investment: Simple or Compound? 2) Car loan: Simple or Compound
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 - Building on these definitions, if I ask you in terms of an investment vs. a long term liability such as a car loan. Can you tell me which type of interest would you rather pay on:
1) The investment: Simple or Compound?
2) Car loan: Simple or Compound?
Expert Solution
Step 1
The investment
In this case, the investor shall prefer compound interest because if the investor avails this option than the period after period investor will earn interest on increased amount i.e. initial amount plus the interest earned up to last period. The compound interest provides investors a huge corpus at the completion of the investment period when compared with an investment with SI (simple interest).
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