Читать книгу Fundamentals of Financial Instruments - Sunil K. Parameswaran - Страница 75

Katherine Mitchell has deposited $25,000 with Continental Bank for a period of four years. The bank pays interest at the rate of 8% per annum on a simple basis.

The growth of Katherine's deposit may be viewed as follows. An investment of $25,000 will become

after one year. Thus, the interest for the year is $2,000. At the end of the second year, interest for the year will be paid only on the original principal of $25,000, and not on the previous year's terminal value of $27,000. Consequently, the accumulated value after two years will be

Extending the logic, the terminal balance after three years will be $31,000, and the final balance after four years will be $33,000.

Notice the following.

 The interest paid every year is a constant amount of $2,000.

 Every year interest is paid only on the original deposit of $25,000.

 No interest is paid on interest that is accumulated at an earlier stage.