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kmarks People Window Help Aplia: Student Question ?? MindTap-Cengage Learning ×? /courses.aplia.com/af/servlet/quiz?quiz action takeQuiz&quiz;_probGuid QNAPCOA8010100000041ca25e00700 4. Future value Aa Aa 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. This process requires 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? O The trend between the present and future values of an investment O The present value (PV) of the amount deposited O The duration of the deposit (N) O The interest rate (I) that could be earned by deposited funds 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. VALUE Dollars TIME Years)Explanation / Answer
process for converting present values into future values - Compounding
Option A. Trend between present and future values of investment is not the variable.
Line A = 22%
Line B = 11%
Line C = 0%
Investments & loans base their interest calculations on 1 of 2 possible methods. Simple Interest and Compound Interest
Compound Interest :
Simple Interest:
The process of earning compound interest allows a depositor or investor to earn interest on any interest earned in prior periods - True
All other factors being equal, both the simple & compound interest methods will NOT generate the amount of earned interest by the end of the 1st year- False
After the end of the 2nd year & all other factors remaining equal, a future value based on compound interest will exceed a future value based on simple interest - True
Future Values:
7% CI = 55126.94
6% SI = 53100
11% CI = 61543
Make investment in 11% Compound Interest
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