Question

Explain why the interest earned on a deposit is equal to the difference between the future value and the present value. In your response be sure to clearly define future and present value

Answer 1

Present value is the value today of one or more future cash payments discounted at an interest rate. Future value is the value at some point in the future of a present amount or amounts after earning a rate of return for a period of time.

interest earned on a deposit is equal to the difference between the future value and the present value because if you deposit present value of money in bank you will get interest and it will be the future value after adding interest to the principal.

Therefore the difference is interest

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