Alexis D. answered • 07/07/20
Tutor in Finance/Accounting
A typical Present Value simple interest formula (without any interim payments) looks like this: Future Value / (1 + rate*time). For example, if you wanted to have $1,000 one year from now and could invest your money now at 5%, you would need to invest 1000/(1+.05*1) = $952.38. Simple interest means that each period, you calculate interest based on your initial investment. On the other hand, compound interest means that every period, you would calculate interest based on your initial investment plus any interest that you have already earned.
To answer this question, it is helpful to know the timeframe for the rate that you have provided. Let's say that your question above has given you an annual rate (you earn 13.5% every year). Our first step would be to convert time (13 weeks) into years. We would do that by figuring out what portion of a year 13 weeks represents (13/52 = .25 years). From there, we can plug our amounts into our formula, which would look like this: 2000 / (1 + (.135*.25)) = 1934.70.
