Question
Can you please type a response for the following, Explain the difference between simple interest and compound interest. Give examples using an unpaid (hypothetical) credit
Can you please type a response for the following,
Explain the difference between simple interest and compound interest. Give examples using an unpaid (hypothetical) credit card balance, or other balance, and compare the EAR with APR.
The difference between simple interest and compound interest is that simple interest is a straight line interest and does not take interest payable into calculation while making interest calculations for over amount of period. The calculation for simple interest is PrincipalTimeRate which would be the (APR). With compounding interest, it is not a straight line interest and would be interest payable. The calculation for compounding interest is EAR = (1+APRn)^n-1. "n" would be the number of years. An example for (APR) would be if a credit card charges 1% interest per month, multiplying it by 12 gives a nominal APR of 12% per year.
Reference:
The Motley Fool. (2016). What Are the Differences Between APR and EAR? Retrieved from http://www.fool.com/knowledge-center/what-are-the-differences-between-apr-ear.aspx
Second one
The concept of time value of money is essentially figuring out what some present sum of money will be worth at some time in the future. This value is determined by many factors such as how much is currently being invested, the interest rate of the investment, and for how long the investment is. Basically, the money you currently have is more valuable then money that you receive at a later date. It is this way because "on a practical level, one reason for this is that you could earn interest while you waited;so, a dollar today would grow to more than a dollar later" (p. 98). Looking at the basic concept and explanation of time value, time is a crucial component to determining the time value of money. The value of moneydefinitelyvaries over time. The ability to access money now, the longer it has to grow and add more value in the future.
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