Calculate the future value of the following two cases: a. LE150,000 deposited in an account that pays 8% simple interest for 7 years. b. LE150,000 deposited in an account that pays 8% compound interest for 7 years. Comment on the future value for both cases and why they are the same/different.

Calculate the future value of the following two cases: a. LE150,000 deposited in an account that pays 8% simple interest for 7 years. b. LE150,000 deposited in an account that pays 8% compound interest for 7 years. Comment on the future value for both cases and why they are the same/different.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.17: Amortized Loans

Problem 1ST

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Concept explainers

Mortgages

A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.

Mortgage

The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.

Question

Calculate the future value of the following two cases:
a. LE150,000 deposited in an account that pays 8% simple interest for 7 years.
b. LE150,000 deposited in an account that pays 8% compound interest for 7 years.
Comment on the future value for both cases and why they are the same/different.

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