Mathematics
Discussion - Compound Interest Value

Question Description

The Discussion for this unit will involve looking at the difference between calculations using simple interest versus compound interest. Appreciation from an investment such as collecting memorabilia can also be viewed as an increase of the monetary value.

There are two questions, each of which will need to be answered in your initial post.

Compound Interest Value

Question 1:

Explain which of the two options below results in a lower balance after 6 months on an investment of \$6,000.

• Annual simple interest of 12% applied at the end of 6 months.
• A monthly interest rate of 1% applied at the end of each month and before the start of the next month. (Compound interest at 12% per year, compounded monthly.)

Discuss why the two methods result in different results.

In what circumstances might you select one option over another?

Question 2:

An increase in value of any collection is not guaranteed for a variety of reasons. If you are a collector, please use your own collection to answer the following questions. If you are not a collector, research to find a collection for your answers.

1. What are some of the factors that could cause the value of your collection to drop in the future?
2. What questions should an investor ask before investing in anything?
3. If no new memorabilia can be created with an autograph, how does the idea of scarcity increase the value of an item?

Hello! Find the answer attached.Regards

1
Running head: COMPOUND INTEREST VALUE

Compound Interest Value
Student’s Name
Institution

2
COMPOUND INTEREST VALUE
Question 1:
Explain which of the two options below results in a lower balance after 6 months on an
investment of \$6,000. a) Annual simple interest of 12% applied at the end of 6 months. b) A
monthly interest rate of 1% applied at the end of each month and before the start of the next
month.

a) Annual simple interest of 12% applied at the end of 6 months.

I = PRT, P = \$6,000, R = 12% or 0.12, T = per 6 months or 1 (Because 6 months is considered as
one period)

I = 6000 * 0.12 * 1

I = \$720

Amount = I + P

= \$6000 + \$720

= \$6,720

b) A monthly interest rate of 1% applied at the end of each month and before the start of the
next month. (Compound interest at 12% per year, compounded monthly.)

Compound Interest = P * (1 + R) ^ T

P = \$6,000 R =...

MrMark (18926)
Purdue University
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