Explain why this statement is true: “A dollar in hand today is worth more than a dollar to be received next year.” What is compounding? What’s the difference between simple interest and compound interest? What would the future value of $100 be after five years at 10 percent compound interest? At 10 percent simple interest?

Graphic View of the Compounding Process

Explain why this statement is true: “A dollar in hand today is worth more than a dollar to be received next year.”
What is compounding? What’s the difference between simple interest and compound interest? What would the future value of $100 be after five years at 10 percent compound interest? At 10 percent simple interest?
Suppose you currently have $2,000 and plan to purchase a threeyear certificate of deposit (CD) that pays 4 percent interest compounded annually. How much will you have when the CD matures?

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