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 interest rate (I) that could be earned by invested funds The present value (PV) of the amount invested O The inflation rate Indicating the change in average prices O The duration of the investment (N) llother things being equal, the numerial 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%, 8%, or 16%, identify the interest rate that corresponds with each line. VALUE IDollars) TIME frearsi esc F5

Explanation / Answer

As per rules I will answer the first 4 sub parts of the question

1: The process of converting present values into future values are called compounding .

(By this we calculate the future value of a present sum taking into account the compound interest)

2: Inflation rate

Variables required are FV= PV*(1+r)^n , So we need PV, Rate of interest and period.

3: Line A= 18%

Line B= 8%

Line C= 0%

(Higher the rate, higher the FV due to the relation FV= PV*(1+r)^n)

4: Simple/ Compound

(There are 2 methods of interest calculations- Simple interest where interest is paid on only the principal and the compound interest where interest is paid on sum accumulated.)

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