I was watching a video wherein the teacher said that in order to generate $ 1,000,000 in three years' time through simple interest, we need to invest a principal amount of $ 856,200 today.
How is this amount arrived at??
Then, the teacher proceeds to explain that in order to have $ 1,000,000 in three years' time through compound interest, we need to invest $ 850,000 today.
Present Value = 1000000 / (1+5.6%) ^ 3 = $ 849, 197.
I just don't understand how present value using simple interest is computed.
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COMPOUND INTEREST
I forgot to mention that the rate of interest is 5.6%.
2y ago#21000000 / ( 1 + (0.056 × 3)) = 856164.38
The principal investment required to get a total amount, principal plus interest
$1,000,000.00 from simple interest at a rate of 5.6% per year for 3 years is $856,164.38.
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