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- May 8, 2020 at 9:40 am
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
May 8, 2020 at 9:41 amthis is the discount cash flow topic
May 8, 2020 at 10:51 amThe 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.
May 8, 2020 at 12:02 pmthank you very much,u help me a lot. 🙂
May 8, 2020 at 12:08 pmBut how to get the 1.14?
May 8, 2020 at 12:10 pmis it 0.14+1 year?
May 8, 2020 at 3:42 pmNo.
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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