Money - Time Relationships and Equivalence - Interest basic terms
6 important questions on Money - Time Relationships and Equivalence - Interest basic terms
What does the term capital refer to?
Capital in the form of money for people, machines, materials, energy and other things can be classified in which 2 basic categories, explain
Owned by individuals who have invested their money or property in a business project or venture in the hope of receiving a profit.
Debt capital/ borrowed capital
Obtained from lenders for investment, in return, the lenders receive interest from the borrowers.
What are 2 fundamental reasons why return to capital in the form of interest and profit is an essential ingredient in (engineering) economy studies?
- Interest and profit pay the providers of capital for forgoing its use during the time the capital is being used | Incentive.
- Interest and profit are payments for the risk the investor takes in permitting another person, or organization to use his/her capital.
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What is the name of the concept that investors must decide whether the expected return on their capital is sufficient to justify buying into a proposed project or venture?
Explain the concept of simple interest and the corresponding formula
Explain the concept of compound interest and compare it to simple interest.
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