A11 Interest Accumlation Part 1

Question 1

what is interest?

Answer 1

Interest is the compensation a borrower of the capital pays to the lender for its use. In other words, interest is the rent for borrowing the principal

It’s also the difference between the accumulated value and the principal is called the amount of interest, or just interest.

Question 2

what is the principal?

Answer 2

it’s the initial deposit

Question 3

what is the accumlated value?

Answer 3

the amount of money after interest is applied to the principal

Question 4

what is an Amount Function and it’s assumptions?

Answer 4

It is the accumulated value at time t of an initial investment of some amount k at time 0

Assumptions:
- A(0) = k
- A(t) = is generally increasing
- If interest accrues continuously the function will be continuous

Question 5

what is the accumlation function and it’s assumptions?

Answer 5

It is the accumulated value at time t of 1 invested at time 0.

Assumptions:
A(0) = 1
A(t) = is generally increasing
If interest accrues continuously the function will be continuous

Question 6

what are the beginning and ending times for the nth year?

Answer 6

The nth year starts at time n-1 and ends at time n

Question 7

What is the relationship b/w A(t) and a(t) for an account, assuming an initial investment of k?

Answer 7

A(t) = k * a(t)