An investment will pay $20,900 at the end of next year for an investment of $20,000 at the start of the year. If the bank offers an interest of 2.5% over the same period, what is the net value of the decision to proceed with the investment in terms of dollars today? Hint: The net value in terms of dollars today is the net value computed at time zero. -$500 +$500 -$400 +$390 +$400 -$390

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.