Principle of Consistency in Interest Calculations

Principle of Consistency in Interest Calculations

[Watch video for detailed explanation of concept with examples]

Principle of consistency say that, in a consistent market, the future value is not depend on the course of action taken by the investor. That is

A(t0, tn) = A(t0, t1) A(t1, t2) A(t2, t3)…….A(tn-1, tn)

Numerical Problem

Q. 1 An investor deposits $1000 in a bank account that pays 10% interest pa. Compare how much the investor would have after 3 years if the money were i) invested for 3 years ii) invested for 1 year and then immediately reinvested for 2 more years.

Calculate: Case 1 – Interest rate given in simple interest Case 2 – Interest rate given is compound interest

[Watch video for solution of above numerical problem]

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