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Discrete Compounding and payment.pptx

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Discrete Compounding and payment.pptx

  1. 1. Discrete Compounding and payment BY. YOSUF HASAN ALDRAZ
  2. 2. Contents  Introduction  Single payment  Annual uniform payment  Uniform Gradient payment  Examples
  3. 3. Introduction  Discrete compounding refers to the method by which interest is calculated and added to the principal at certain set points in time ,For example, interest may be compounded weekly, monthly, or yearly .
  4. 4. Single payment P = F(P/F, i%, N)
  5. 5. Annual uniform payment F = A(F/A, i%, N) A = F(A/F, i%, N)
  6. 6. Uniform Gradient payment P = G (P/G, i%, N) A = G (A/G, i%, N)
  7. 7. Example 1 :-  You borrow $15,000 from your credit union to purchase a used car. The interest rate on your loan is 0.25% per month∗ and you will make a total of 36 monthly payments. What is your monthly payment?
  8. 8. solution
  9. 9. Example 2 :-  When you take your first job, you decide to start saving right away for your retirement. You put $5,000 per year into the company’s 401(k) plan, which averages 8% interest per year. Five years later, you move to another job and start a new 401(k) plan. You never get around to merging the funds in the two plans. If the first plan continued to earn interest at the rate of 8% per year for 35 years after you stopped making contributions, how much is the account worth?
  10. 10. solution
  11. 11. Thank you

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