If you borrow $100 at 10% interest rate today, how much would you need to pay the lender 1 year later?Next year you have to return $110.
Principal borrowed = $100
Interest rate = 10% or 0.10
Interest charge here = $100 + ($100 x 0.10) = $10
In the future, the future value (FV) = amount borrowed + interest to be received
FV = $100 [1 + (0.10 x 1)]
= $110
P = Principal Sum = Starting Capital = $100
i = interest rate = 10%
n = number of period = 1 year
FV = future Value = $110
3 comments:
Can I know why does n=10. I thought 1 year is 12.
My Canon calculator tells me 100(1+ 0.1x10) = 200. Just joking! Because I am not so understand why become 110.
Sorry, I make the mistake of the "10", I have made the correction, n is the period in year, that means 1.
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