Читать книгу Fundamentals of Financial Instruments - Sunil K. Parameswaran - Страница 82

Take the case of Alex Gunning, who deposited $25,000 with International Bank for four years and nine months. Assume that the bank pays compound interest at the rate of 8% per annum for the first four years and simple interest for the last nine months.

The balance at the end of four years will be

The terminal balance will be

In the earlier case when interest was compounded for four years and nine months, the accumulated value was $36,033.20. Thus, simple interest for the fractional period yields an additional benefit of $19.76. The reason why we get a higher value in the second case is that for a fractional period simple interest will give a greater return than compound interest.