Chapter2. The Basic Theory of Interest || Part1

2.1 Principal and Interest

 

Principal : Amount invested (original amount)

Interest : Extra money paid on principal

 

Simple interest

• Interest will be paid only on the principal
• Account grows linearly with time
• V = A(1+r*n)
• V = Future value, A = 원금, r = 이자, n = 몇 년?

Compound interest

• Interest will be paid on the principal and accrued interest 

• Rule of 72
  • Money invested at R% compounded annually doubles in about 72/R years
  • 돈이 2배가 되기 위해서는, R% 연복리일 때,  72/R년이면 2배가 된다. 

Effective interest rate(실효 금리, 실제로 1년동안 복리를 계산했을 때 얼마냐? compound rate와 단위 통일 느낌)

• Equivalent yearly interest rate that would produce the same result after one year without compounding
• 복리없이 1 년 후 동일한 결과를 생성하는 동등한 연간 이자율
• example
  • Annual rate of 8% compounded quarterly will produce an increase of
  • Effective interest rate is 8.24% and nominal rate is 8%

 

Continuous Compounding

• m이 무한대로 간다면?

Discounting

• present value를 계산하기 위해서 미래의 가치를 가지고 와~
• (1+r)로 나눠 // compounding은 (1+r)로 곱하고

Discount Factor

 

• Present value of a future monetary amount is less than the face value of that amount

• Discount factor: Factor by which the future value must be discounted