Summary
One of the most fundamental concepts in business decisions is that money has time value. A given amount of money at one point in time almost always has a different value than the same amount of money at some other time. Money's time value is quantified in terms of interest, which is literally a rental fee for money.
Under simple interest, the interest charge is directly proportional to the interest rate, the amount borrowed, and the duration of the loan. Simple interest is not available to a typical business.
The typical business loan uses compound interest, where unpaid interest is added to the principal amount of the loan. Literally, interest is paid on interest.
Six different compound interest equations were presented in this chapter: ...
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