tudy Tools 15 ss Tips ss Tips Ch 05: Assignment - Time Value of Money Back to Assignment Attempts 6.2 6.3 3. Future value Keep the Highest 6.317 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 four time-value-of-money variables. Which of the following is not one of these variables? The duration of the deposit (N) The trend between the present and future values of an investment The present value (PV) of the amount deposited The interest rate (1) that could be earned by deposited funds Q Search this course 0x VALUE Dedaral This process requires knowledge of the values of three of 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. A-Z 16 Courses Catalog and Study Tools Rental Options College Success Tips Career Success Tips Help Give Feedback Line A VALE Daral Line B: S ensity 710 TIME Line C interest and the Investments and loans base their interest calculations on one of two possible methods: the interest methods. Both methods apply three variables-the amount of principal, the interest rate, and the investment or deposit period to the amount deposited or invested in order to compute the amount of interest. However, the two methods offer in their relationship between the variables Assume that the variables 1, N, and PV represent the interest rate, investment or deposit period, and present value of the amount deposited or invested, respectively. Which equation best represents the calculation of a future value (FV) using A-Z 7 N P 3 Catalog and Study Tools Rental Options College Success Tips Career Success Tips Help Give Feedback pectively, which equation best represents the calculation of a future value (PV) Compound interest? PV-PV/(1+1) -P+ (PxIxN) PV-PVX (1+1) Simple interest? PV-PV/(PVxIXN) PV-PVX1XN PV=PV + (PVx1xN) Identify whether the following statements about the simple and compound interest methods are true or false Statement After the end of the second year and all other factors remaining equal, a future value based on compound interest wil never exceed the future value based on simple interest. The process of earning simple interest does not allow a depositor or investor to earn interest on any previously eamed interest All other factors being equal, both the simple interest and the compound interest methods will accrue the same amount of earned interest by the end of the first year. True False Nicholal is willing to invest $30,000 for three years, and is an economically rational Investor He has identified three investment alternatives (A, B, and Cthat vagy in their method of calculating interest and in the annual interest rate offered. Since he can enigmake one investment during the three 0x 2 - and Study Tools Identify whether the following statements about the simple and compound interest methods are true or false Options Success Tips Success Tips edback Statement After the end of the second year and all other factors remaining equal, a future value based on compound interest will never exceed the future value based on simple interest. The process of earning simple interest does not allow a depositor or investor to earn interest on any previously earned interest. All other factors being equal, both the simple interest and the compound interest methods will accrue the same amount of earned interest by the end of the first year. Nicholal is willing to invest $30,000 for three years, and is an economically rational investor. He has identified three investment alternatives (A, B, and C) that vary in their method of calculating interest and in the annual interest rate offered. Since he can only make one investment during the three- year investment period, complete the following table and indicate whether Nicholai should invest in each of the investments. Note: When calculating each investment's future value, assume that all interest is earned annually. The final value should be rounded to the nearest whole dollar Investment Interest Rate and Method Expected Future Value Make this investment? 8% simple interest 3% compound interest 5% compound interest B True False C Grade It Now Save & Continue G Z A