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A one- year investment yields a return of 14%. The cash returned from the investment,
including principal and interest, is 5,130. What is the interest?the ans is 630 but i cant find the ans
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this is the discount cash flow topic
The PV of the cash inflow (and therefore the principal) is 5,130 x (1/1.14) = 4,500.
Therefore the interest is 5,130 – 4,500 = 630.
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thank you very much,u help me a lot. 🙂
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But how to get the 1.14?
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is it 0.14+1 year?
No.
1/(1+r)^n is the discount factor where r is the interest rate and n is the number of years. You are given the formula at the top of the page of present value factors that you are given in the exam.
This is all explained in my free lectures. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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