# Managerial Accounting

Business

## Quiz 19 :

Compound Interest and the Concept of Present Value

Answer:

Calculate the interest for another year taking principal amount as $550 that is calculated in the first year as follows:

If we deduct the principal amount of $500 and simple interest of $100 on $500 for 2 years, we get $5(50 × 10%) as compound interest which is nothing but interest on interest.

Answer:

To Compute the Future Value of Number the Following Formula is used:

Where

n is the Number of Years,

r is the Rate of Interest, and

p is the Principal Amount

The formula gives future value of Cash Flow

after n years when the Rate of Interest is r.

Answer:

Present value:-

Present value can be defined as "the value of series of cash flows at the end of next year at a given rate of discount".

Where, r = rate of interest

n = number of years

= Present value of cash flow.

Example:-

Find the present value of

to be required after 5 years if the interest rate is

Substituting the given data in the above formula