As finance counselor, you have to make sure your customers clearly understand the financial concepts and, mainly,

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Question:

As finance counselor, you have to make sure your customers clearly understand the financial concepts and, mainly, the financial operations they are mostly involved in (deposits, short term investments, loans...). You decide, then, to prepare some notes that will be used as a presentation of those financial concepts as well as some cases to exemplify them.

-Explain the difference between a "simple interest rate" investment and a "compound interest rate" investment? Which is the best option? Why?

-To illustrate the previous point, if Mr.A invests 10,000 in a financial product that offers a simple interest rate of a 5% for 1 year, and Mr.B invests the same amount in a financial product that offers a compound interest rate of a 5% (compounded annually) for 1 year, how much will each one of them get at the end of the year?

-Explain the concept of the compounding period (or frequency). If we invest the same amount of money in two different financial products that offer the same interest rate (but with different compounding period), why will we get a different amount at the end?

-To illustrate the previous point, if Mr.A invests 10,000 in a financial product that offers a compound interest rate of a 6% (compounded semiannually) for 3 year, and Mr.B invests the same amount in a financial product that offers a compound interest rate of a 6% (compounded monthly) for 3 year too, how much will each one of them get at the end of that period of 3 years?

-Why should your customer use the technique of the Net Present Value to decide if it makes sense to enter a project or not?

-To exemplify the previous point, if your customer is presented with a project that consists on an initial investment of 50,000 next year, and then he'll receive yearly incomes of 10,000 during the next 6 years, and knowing that your customer wants to get a profitability of a 6% minimum, would you recommend your customer to enter that project? Why?