Health Finance

In: Business and Management

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1. What is the difference between simple interest and compound interest?

Simple Interest only calculates the interest on the principal in each period. Compound interest calculates the future value of money in which interest is calculated on the cumulative principal and interest earned up to that point.

2. What is the future value of $10,000 for an interest rate of 16% and 1 annual period of compounding? for an annual interest rate of 16% and 2 semiannual periods of compounding? for an annual interest rate of 16% and 4 quarterly periods of compounding?

The future value of $10,000 with an interest rate of 16% and 1 annual period of compounding is $11,600.00. The future value of $10,000 with an interest rate of 16% and 2 semiannual periods compounding is $11,664.00. The future value of $10,000 with an interest rate of 16% and 4 quarterly periods compounding is $11,698.59.

3. Define an annuity.

A series of equal cash flows made or received at regular time intervals.

4. Define an ordinary annuity.

A series of payments made or received at the end of each period.

5. Define an annuity due.

An annuity with n payments, where the first payment is made at time t = 0, and the last payment is made at time t = n - 1.

6. In the future value annuity table at any interest rate for 1 year, why is the future value interest factor of this annuity equal to 1.00?

In a future value annuity table at any interest rate for 1 year, the future value interest factor of the annuity is equal to 1.00 because no interest has been acquired.

7. What is the relationship between the present value of single dollar payment formula and the present value of an ordinary annuity formula for the same number of years and same discount rate? Assume a discount rate of 10% and n value of 5 periods. (Be sure to support your explanation with an example.)

The…...

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