A21 The Basic Problem

Question 1

interest problems involve these four quantities:

Answer 1

1. the principle orignally invested
2. the length of the investment
3. the rate (or force) of interest (or discount)
4. the accumulated value of the principal at the end of the investment period

Question 2

what is a yield rate?

Answer 2

it is the rate of interest that establishes an quivalency of value b/w different points in time.

Ex. A value of 100 at time 0 is equivalent to a value of 110 at time 1 if and only if the yield is 10%

Question 3

what are things to know abt an investment period?

Answer 3

• length is measured in time units
• time unit assumed to be one year unless stated otherwise
• most convenient time unit is the interest conversion period

Question 4

how do you know the interest question of th epoint of view borrower or lender?

Answer 4

borrower pays interest

lender is credited interest