Interest earned

Expenditure on corrosion prevention is an investment and appropriate accountancy techniques should be used to assess the true cost of any scheme. The main methods used to appraise investment projects are payback, annual rate of return and discounted cash flow (DCF). The last mentioned is the most appropriate technique since it is based on the principle that money has a time value. This means that a given sum of money available now is worth more than an equivalent sum at some future data, the difference in value depending on the rate of interest earned (discount rate) and the time interval. A full description of DCF is beyond the scope of this section, but this method of accounting can make a periodic maintenance scheme more attractive than if the time value of money were not considered. The concept is illustrated in general terms by considering a sum of money P invested at an... 

Compound interest was used in the above case. Compound interest means that the interest earned is figured not only on the principal but also on any previously earned interest. This is equivalent to increasing the principal by the amount of interest after each interest period. See Table 10-3 for the development of the following simple formula for compound interest. ... 

When you borrow money, you pay additional funds for the service. When you deposit money into savings you earn additional funds for your deposit. In either case, the additional funds are called interest. The money borrowed or deposited is called principal the percentage used to calculate the additional funds is called the interest rate. Interest earned or owed is dependent not only on the principal and rate, but also on another variable, which is the length of time in years. To calculate interest for one year, you can set up a proportion. Because interest is such a common occurrence in the business world, there is a formula used to calculate interest / = PRT. The interest is I, P is the principal, R is the rate written as a decimal, and T is the time in years. 

What is the interest earned on 1,990.00 invested at 4% simple interest if it is invested for three years ... 

The maximum contributions under a Keough Plan are substantially higher than under an individual retirement account. The contribution limitations are the lesser of 15% of earned income or 7500. Earned income for contribution purposes does not include wages, salaries, dividends, or interest. Earned income includes only net earnings from self-employment. 

Times interest earned Profit before taxes plus interest charges/interest charges 7.0-8.0... 

Compounding interest means that you split up the rate of interest into a designated number of subintervals (every three months, twice a year, daily, and so on), figure the interest earned during that subinterval, add the interest to the principal, and then figure the next interval s interest on the sum of the original principal plus the interest you ve added. As you may expect, you ll have more money in the end if you deposit it where you can earn compound interest rather than just a flat amount. The formula for compound interest... 

Simple interest is the interest computed when compounding doesn t occur. The interest in a savings account compounds, because, if you don t withdraw any of the money you ve invested, your interest earns interest. With compound interest, the amount of interest earned is added to the account total, and then the new interest is figured on the new total. Simple interest is computed only on the beginning amount. 

The formula for simple interest is I = prt, where / is the amount of interest earned, p is the principal or amount of money involved, r is the interest rate (a percent changed to a decimal for the computation), and t is the amount of time involved — usually a number of years. 

Problems involving interest are two types interest earned, and interest you have to pay. The interest earned is the more-fun type. You get to add money to your savings account without even working at it. 

To determine the total amount of interest earned, you have to add the two different interest amounts. One amount comes from the interest earned at 4 percent, and the other amount comes from the interest earned at 6 percent. 

The simple-interest formula says that the interest earned, I, is equal to the amount invested (principal), p, times the percentage rate, r, written as a decimal, times the number of years (time), t. The formula is I = prt. 

Discounted cashflow rate of return (DCFRR). This method is called the investors return on investment, internal rate of return, profitability index, interest rate of return, or discounted cashflow. A trial-and-error solution is necessary to calculate the average rate of interest earned on the company s outstanding investment in the project. It can also be considered the maximum interest rate at which funds could be borrowed for investment in the project, with the project breaking even at the end of its expected life. 

In economic terminology, the amount of capital on which interest is paid is designated as the principal, and rate of interest is defined as the amount of interest earned by a unit of principal in a unit of time. The time unit is usually taken as one year. For example, if 100 were the compensation demanded for... 

The simplest form of interest requires compensation payment at a constant interest rate based only on the original principal. Thus, if 1000 were loaned for a total time of 4 years at a constant interest rate of 10 percent/year, the simple interest earned would be... 

Period Principal at start of period Interest earned during period (i = interest rate based on length of one period) Compound amount S at end of period... 

In addition to financial sfafemenf analysis, e.g., horizonfal analysis, the rate-of-debt-to-total-assets raho and the hmes-interest-earned ratio can be used to evaluate the capital structure and strategic financial strengths and weaknesses of an enterprise. 

When calculating compound interest, it is easiest to sequentially calculate the interest earned using I = PRT. You should be familiar with the following ways of compounding interest ... 

Gary Otto made 8,000 and put half that amount into an account that earned interest at a rate of 6% per year. After 2 years, what is the dollar amount of the interest earned ... 

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