Question

Would you rather have a savings account that pays 5% interest compounded semiannually or one that pays %5 interest compounded daily? Explain.

What is an amortization schedule and what are some ways these schedules are used?

Answer 1

A Saving account where interest rate is compounded daily will given higher effective annual return rather than the rate that is semiannually compounded. The shorter the period of compounding the interest, the higher the value of interest earned but APR given should be equal.

An amortization schedule is period based table consisting of the opening loan value, interest vlaue, monthly payment, principal value , and outstanding value of the loan. This table helps to find immediatly the value of interst and prinicipal of annuity at any given period of the loan. The consumer comes to know that how much loan is pending at given point of time. Basically financial intitutes provides this schedule to their consumers for detailing repayments of their loan.

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