Question
As a rising business reporter for a financial newspaper, you are given the task of preparing a series of articles that explain the power of
As a rising business reporter for a financial newspaper, you are given the task of preparing a series of articles that explain the power of time value of money. The editor would like you to address several specific questions in addition to demonstrating for the audience the use of time value of money techniques by applying them to several problems. Kindly prepare your response the following request:
Explain the concept of time value of money. Why do we say that 1000 EUR today do not have the same value than 1000 EUR next year?
Explain the difference between a simple interest rate investment and a compound interest rate investment? Which is the best option? Why?
Explain the concepts of compounding and discounting and provide an example.
Explain the concept of the compounding period (or frequency). If we invest the same amount of money in two different financial products that offer the same interest rate (but with different compounding period), why will we get a different amount at the end?
- What will 6000 EUR invested for 10 years at 6 percent compounded annually grow to?
- What will 6000 EUR invested for 10 years at 6 percent compounded monthly grow to?
- How many years will it take 400 EUR to grow to 1 671 EUR if they are invested at a 10% compounded annually? And what if its compounded quarterly?
- At what rate would 1000 EUR have to be invested to grow to 4046 EUR in 10 years?
- What is the best option: to receive 10,000 now, to receive 15,000 in two years or to receive 20,000 in five years. The interest rate is a 20%
- If someone invests 100,000 EUR in a bank account that offers an interest rate of a 6% compounded monthly, during 5 years, what is the Equivalent Annual Rate of this operation
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