Mastery Problem: Time Value of Money Time value of money Due to both interest earnings and the fact that money out to good use shouid generate additional funds above and beyond the originai investment, money tomorrow wiil be worth less than money today. Simpie interest Ross (20., a company that you reguiarly do business with, gives you a 512,000 note. The note is due in three years and pays simple interest of 7% annually. How much will Ross pay you at the end oi: that term? Note: Enter the interest rate as a decimal. (Le. 15% wouid be entered as .15) Prir'cipal + [Principai x Rate x Time ) : Total 5 |+tsi ixi ixi meg Feedback Y Check My Work Remember. the interesl is only compuled on lhe principal amount, Compound interest with compound interest, the interest is added to principal in the calcuiation of interest in future periods. This addition of interest to the principal is called compounding. This differs from simple interest, in which interest is computed based upon oniy the principai. The frequency with which interest is compounded per year wiil dictate how many interest computations are required {i.e. annually is once, semi-annualiy is twice, and duarteriy is four times]. Imagine that Ross Co., fearing that you wouldn't take its deal, decides instead to offer you compound interest on the same $12,000 note. How much will Ross pay you at the end of three years if interest is compounded annualiy at a rate of 7%? If required, round your answers to the nearest cent. Principal Annual Amount of Accumulated Amount at Amount at Interest {Principal at End of Year [Principal at Beginning of Beginning of Year x Beginning of Year + Annual Year Year 7%] Amount of Interest] 1 512,000 $340 $12,340 M: s: C