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elaborate on the concept of compounding. Discuss how to calculate the net present value and the...

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Finance

elaborate on the concept of compounding. Discuss how tocalculate the net present value and the significance of thisindicator for decision.

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Compounding is when interest is earned both on the prinicipalamount as well as the interest earned in the prior periods Undercompounding the value of the asset or the liability increasesfasterFor exampleLets say you have 1000 which you deposit in bank at 10 for 2years In this case the amount earns a simple interestSo after 2 years the amount youll receive is 1200 1000 1000012However if you deposit the same amount in common stock andsuppose you receive the same rate    See Answer
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elaborate on the concept of compounding. Discuss how tocalculate the net present value and the significance of thisindicator for decision.

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