Principles of Quantitative Methods
Principles of Quantitative Methods
2011
Table of Contents
Question 1 – Difference between Simple Interest and Compound Interest 3
1.0 Simple Interest 3
1.1Compound Interest 4
Question 2 – Difference between Depreciation by Straight Line Method and Depreciation by Reducing Balance Method 6
2.0 The Difference 6
Question 3 - Standard Deviation and Quartile Deviation 7
Standard Deviation 7
Quartile Deviation 8
3.0 Purpose of Calculating Standard Deviation and Quartile Deviation 8
3.1 Calculation of Standard Deviation and Quartile Deviation 8
Reference 9
Question 1 – Difference between Simple Interest and Compound Interest
To know the difference between simple and compound interest, one must have an overview of the interest concept and the rationale behind interest being paid to the lender of the funds. The concept of interest is that it is the cost of borrowing money (Salkind, 1998). The lender of the funds is foregoing the utility of using the funds at the present amount of time, and is also foregoing the opportunity to use these funds at the present moment. For this purpose, a cost is associated with the lending of the funds which is termed as interest (Henry, 1990). This concept is important for it helps to understand the difference between the concept of simple interest and compound interest, as well as their calculations.
1.0 Simple Interest
Simple interest is the cost which is levied on the original amount only. The initial fund which is lent to the borrower is termed as principal (Lewin, 1981). The concept of simple interest is that the fixed charge is levied on the borrower of the funds which is proportional to the amount of time for which money is lent. It is calculated on the principal only. Accumulated interest from prior periods is not used in calculations for the following periods (Lohr, 1999). For example, if the lender of the funds decide that his/her opportunity cost for foregoing the use of the funds is ten percent, and the
2011
Table of Contents
Question 1 – Difference between Simple Interest and Compound Interest 3
1.0 Simple Interest 3
1.1Compound Interest 4
Question 2 – Difference between Depreciation by Straight Line Method and Depreciation by Reducing Balance Method 6
2.0 The Difference 6
Question 3 - Standard Deviation and Quartile Deviation 7
Standard Deviation 7
Quartile Deviation 8
3.0 Purpose of Calculating Standard Deviation and Quartile Deviation 8
3.1 Calculation of Standard Deviation and Quartile Deviation 8
Reference 9
Question 1 – Difference between Simple Interest and Compound Interest
To know the difference between simple and compound interest, one must have an overview of the interest concept and the rationale behind interest being paid to the lender of the funds. The concept of interest is that it is the cost of borrowing money (Salkind, 1998). The lender of the funds is foregoing the utility of using the funds at the present amount of time, and is also foregoing the opportunity to use these funds at the present moment. For this purpose, a cost is associated with the lending of the funds which is termed as interest (Henry, 1990). This concept is important for it helps to understand the difference between the concept of simple interest and compound interest, as well as their calculations.
1.0 Simple Interest
Simple interest is the cost which is levied on the original amount only. The initial fund which is lent to the borrower is termed as principal (Lewin, 1981). The concept of simple interest is that the fixed charge is levied on the borrower of the funds which is proportional to the amount of time for which money is lent. It is calculated on the principal only. Accumulated interest from prior periods is not used in calculations for the following periods (Lohr, 1999). For example, if the lender of the funds decide that his/her opportunity cost for foregoing the use of the funds is ten percent, and the