Test: Compound Interest and Annuity - Commerce MCQ

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods.

This formula represents compound interest when interest is compounded annually.

Use the formula for compound interest: A = P(1 + r)^n. Solving for r, we get: r = ((A/P)^(1/n) - 1) * 100 = ((6000/5000)^(1/2) - 1) * 100 ≈ 10%.

Use the compound interest formula: A = P(1 + r)^n. A = 3000(1 + 0.06)^3 ≈ 3190.

Use the formula for compound interest: A = P(1 + r)^n. Interest = A - P = 8000(1 + 0.08)^2 - 8000 ≈ 1024.

Use the formula for the future value of an annuity: FV = PMT * ((1 + r)^n - 1)/r. FV = 500 * ((1 + 0.06)^5 - 1)/0.06 ≈ 2800.

This formula represents the future value of an annuity when payments are compounded annually.

Use the formula for the future value of an annuity: FV = PMT * ((1 + r)^n - 1)/r. FV = 1000 * ((1 + 0.05)^10 - 1)/0.05 ≈ 12000.

Use the formula for the present value of an annuity: PV = PMT * ((1 - (1 + r)^-n)/r). PV = 2000 * ((1 - (1 + 0.08)^-5)/0.08) ≈ 8000.

Annuities involve periodic payments made at regular intervals.

This formula calculates the present value of an annuity when payments are compounded annually.

Use the formula for the present value of an annuity: PV = PMT * ((1 - (1 + r)^-n)/r). PV = 500 * ((1 - (1 + 0.06)^-8)/0.06) ≈ 3500.

An annuity is a financial product that involves a series of payments made at regular intervals, typically monthly, quarterly, or annually.

Compound interest accumulates interest on both the initial principal amount and any previously earned interest, resulting in a higher overall amount compared to simple interest, which only applies to the initial principal.

The future value of an annuity is influenced by factoRs. such as the amount of each periodic payment (size), the interest rate at which the annuity is invested, and the duration or number of periods over which payments are made. These factoRs. determine how much the annuity will be worth at a future date.