***Excerpt from book***
One of the first types of investments that people learn about is some variation on the savings account. In exchange for the temporary use of an investor’s money, a bank or other financial institution agrees to pay interest, a percentage of the amount invested, to the investor. There are many different schemes for paying interest. In this chapter we will describe some of the most common types of interest and contrast their differences. Along the way the reader will have the opportunity to renew their acquaintanceship with exponential functions and the geometric series. Since an amount of capital can be invested and earn interest and thus numerically increase in value in the future, the concept of present value will be introduced. Present value provides a way of comparing values of investments made at different times in the past, present, and future. As an application of present value, several examples of saving for retirement and calculation of mortgages will be presented. Sometimes investments pay the investor varying amounts of money which change over time. The concept of rate of return can be used to convert these payments in effective interest rates, making comparison of investments easier.