Question: What is the difference between future value and present value? Which approach is generally preferred by financial managers? Why? Define and differentiate among the three

  1. What is the difference between future value and present value? Which approach is generally preferred by financial managers? Why?
  2. Define and differentiate among the three basic patterns of cash flow: (1) single amount, (2) an annuity, and (3) a mixed stream.
  3. How is the compounding process related to the payment of interest on savings? What is the general equation for future value?
  4. What effect would a decrease in the interest rate have on the future value of a deposit? What effect would an increase in the holding period have on future value?
  5. What is meant by the present value of a future amount? What is the general equation for present value?

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