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2. Future value The principal of the time value of money is probably the single most important concept in financial management. One of the most
2. Future value 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 The inflation rate indicating the change in average prices O The present value (PV) of the amount invested O The interest rate (I) that could be earned by invested funds O The duration of the investment (N) 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%, 12%, or 24%. Identify the interest rate that corresponds wth each lin VALUE IDollars] TIME (Years] Line A: Line B: Line C: Investments and loans base their interest calculations on one of two possible methods: the the interest and interest methods. Both methods apply three variables-the amount of principal, the interest
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