In ASM (6th edition, pg 58), Cherry makes note that we shouldn't fall into the variable force of interest trap, but I'm afraid I already have.
My understanding is that you have to be careful if the investment is not made at time 0 when investing with a variable force of interest.
This is just the first part of the question:
Joe deposits 10 today and another 30 in 5 years into a fund paying simple interest of 11% per year. Find the accumulated value after 10 yrs.
At the beginning of the manual, I would have said
10(1+(10)(.11)) + 30(1+(5)(.11))
But after reading about how things change when you invest at some time other than 0, (and since the force if interest varies for simple interest) I thought the accumulated value would be:
10(1+(10)(.11)) + 30(1+(10)(.11))/(1+(5)(.11))
What is wrong with my thinking?:skeptical: