There is a positive relationship between both the interest rate used to compound a present sum and the number of years for which the compounding continues and the future value of that sum.
What is interest rate?
- The amount a lender charges a borrower is called an interest rate, and it is expressed as a percentage of the principal, or the loaned amount.
- Typically, a loan's interest rate is expressed as an annual percentage rate, or APR (APR).
- A savings account or certificate of deposit earnings at a bank or credit union may also be subject to an interest rate (CD).
- The interest received on these deposit accounts is measured in annual percentage yields (APY).
In essence, interest is a fee assessed to the borrower for the use of a resource. Borrowed assets may include money, merchandise, automobiles, and real estate.
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