Question #97908

(a) Differentiate between simple interest and compound interest. Which one commonly

used in personal and professional financial transactions?

(b) Determine the future equivalent of RM 8,000 invested for 20 years if using the

interest rate stated below:

i. 5% simple interest per year.

ii. 5% compound interest per year.

iii. 5% interest per year, continuously compounded.

2

(c) Suppose that certain EOY cash flows are expected to be RM 1,000 for the second

year, RM 2,000 for the third year, and RM 3,000 for the fourth year and that, if

interest is 15% per year, it is desired to find

i. present equivalent value at the beginning of the first year

ii. uniform annual equivalent value at the end of each of the four years

used in personal and professional financial transactions?

(b) Determine the future equivalent of RM 8,000 invested for 20 years if using the

interest rate stated below:

i. 5% simple interest per year.

ii. 5% compound interest per year.

iii. 5% interest per year, continuously compounded.

2

(c) Suppose that certain EOY cash flows are expected to be RM 1,000 for the second

year, RM 2,000 for the third year, and RM 3,000 for the fourth year and that, if

interest is 15% per year, it is desired to find

i. present equivalent value at the beginning of the first year

ii. uniform annual equivalent value at the end of each of the four years

Expert's answer

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