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ISEE Unit 4

Simple interest calculates interest on the principal only, while compound interest calculates interest on both the principal and accumulated interest over time. The document also defines economic equivalence as cash flows that have the same economic effect and could be traded for one another, and that calculations for economic effects of cash flows are based on this concept of equivalence.

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44 views25 pages

ISEE Unit 4

Simple interest calculates interest on the principal only, while compound interest calculates interest on both the principal and accumulated interest over time. The document also defines economic equivalence as cash flows that have the same economic effect and could be traded for one another, and that calculations for economic effects of cash flows are based on this concept of equivalence.

Uploaded by

devrepankaj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as ODP, PDF, TXT or read online on Scribd
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Understanding money management

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Methods of Calculating Interest

The two computational schemes for calculating this earned


interest yield either
simple interest or compound interest.

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Definition and Simple Calculations

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Calculations for determining the economic effects of one or
more cash flows are based on the concept of economic
equivalence.
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Economic equivalence exists between cash flows that have the
same economic effect and could therefore be traded for one
another in the financial marketplace
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Economic equivalence refers to the fact that a cash
flowwhether a single payment or a series of payments-can be
converted to an eyrlivalent cash flow at any point in time.

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