The principal of the time value of money is probably the single most important c

Question

The principal of the time value of money is probably the single most important concept in financial management. One of the most frequently encountered applications involves the calculation of a future value The process for converting present values into future values is called knowledge of the values of three of four time-value-of-money variables. Which of the following is not one of these variables? This process requires O The present value (PV) of the amount invested The duration of the investment (N) O The interest rate (I) that could be earned by invested funds O The inflation rate indicating the change in average prices All other things being equal, the numerical difference between a present and a future value corresponds to the amount of interest earned during the deposit or investment period. Each line on the following graph corresponds to an interest rate: 0%, 11%, or 22%. Identify the interest rate that corresponds with each line.

Explanation / Answer

The process of converting present value to future value is called COMPOUNDING

The inflation rate is not a required variable.

Compound interest: fv = pv ×(1+r)^n

Simple interest : fv = pv + (pv × i × n)

True or false:

1. True

2. True

3. True

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