College Math

(1 + ) = (1.25) −3 i = 0.0772 Hence, APR = 7.72% It should be noted that if the time period is given in days or weeks, convert it into years by dividing by 365 days or 52 weeks, as the case may be. 2.11 Present and Future Value The concepts of present and future value are based on the concept of time value of money. It means that the value of money changes with time. In simple words, the worth of money today will be different tomorrow. Ask your grandparents what $10 could by at the supermarket fifty years ago and then see for yourself whether you can buy as many items today with the same amount. The answer would be no. This is simply because the worth or value of money keeps changing with time. Suppose you invest $100 today for a duration of 3 years. Then the present value would be $100 and the future value would be the value that you get by investing this $100 for three years, which depends on the rate of interest. = ∗ (1 + ) Where, FV = future value PV = Present value i = Rate of interest n= Time period If you look closely, the formula is same as the formula for compound interest. 2.12 Chapter Two Review Question 1: You go to a restaurant on Saturday evening where the cost of meal is $22.79. You pay a 15% tip and are charged sales tax of 7%. On Sunday, you go to another restaurant where the cost of the meal is $20.67. You leave a 20% tip and are charged 5% sales tax. Which meal costs more and by approximately how much? a. Saturday, $1.97 b. Sunday, $1.97 c. Saturday, $2.97

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