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Simple Interest Growth
This is a linear function of time, with intercept given by the present value and slop given by annual interest
An investment earns 5% per year and is worth $1,000 after 9 months. Find PV (or the investment)
The way to do this problem is by using only the
1000=X(1+(.05 * 9/12)
The "Maturity Value" of a T(Treasury) Bill
This is the amount of money it will pay at the end of its life, that is, upon maturity
How much will a T-Bill sell for if it has a 5% discount rate and it is a 1 year 10,000 dollars bill.
It will sell for 9500 because you subtracted 5% of %10,000 from $10,000
If the bill is 10,000 and you have a 6 month bill which is half of 12 months (1 year) and the discount rate is 5% then
you cut the 5 percent in half to 2.5% and discount the 10000 with that which is $9,750
So if it is 3 months then you multiply the Month / year times the discount rate to find out the actual selling price discount rate.
For Compounded the formula is
PV=FV / ((1+R/M))^MT
To find M, know that M is how many times per year so if the question states, "Compounded Anually" it is only 1 year so M is 1
Private ownership of resources and the use of markets and prices to coordinate and direct economic activity
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