Assignment Chapter 04 Time Value of Money The principle 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. Corpound interest occurs when interest is camned on prior periods' interest Which of the following is not one of these variables? The present value (PV) of the amount deposited The trend between the present and future values of an investment The duration of the deposit (n) The interest rate (c) 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%, 8%, or 17% Identify the interest rate that corresponds with each line. 20000 15006 : A) 15000 TIME periods Assignment: Chapter 04 Time Value of Money Line A corresponds to while tine B is consistent with . Line C corresponds to Investments and loans base their interest calculations on one of two possible methods: the interest and the interest methods. Both methods apply three variables-the amount of principal, the interest rate, and the investment or deposit period to the amount deposited or invested in order to compute the amount of interest. However, the two methods differ in their relationship between the variables Assume that the variables t, n, and PV represent the interest rate, investment or deposit period, and present value of the amount deposited or invested, respectively Which equation best represents the calculation of a future value (FV) using simple interest? a FV-PV+(PVxrxn) OFVPV (PV XIX) FV PV - (PVXIX) OFY - PV XIX Which equation best represents the calculation of a future value (PV) using compound interest? FV-PVX (1+1)" OFV PV OFV PV FV-PV + (PV XIX) Identify whether the following statements about the simple and compound interest methods are true or false True False All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound interest . Wter the end of the second year and all other factors remaining equal, a future value based on compound interest will never exceed the future value based on umple interest Everything else held constant, an account that can compound interest will grow more quickly than an otherwise identical account that can simple interest Army is willing to invest $25,000 for five years, and is an economically robional investor She has identified the investment alternatives L M and P) Assignment: Chapter 04 Time Value of Money Assume that the variables t, n, and PV represent the interest rate, investment or deposit period, and present value of the amount deposited or invested, respectively, Which equation best represents the calculation of a future value (FV) using simple interest? FV = PV + (PV XrXn) O FV-PVX (PV XIXn) OFV-PV - (PV XIXn) OFV-PV XIX Which equation best represents the calculation of a future Value (FV) using compound interest? FV-PVX (1+r)" OFV- DV (1+1) (1) OFV- OFV - PV + (PV XTXn) Identify whether the following statements about the simple and compound interest methods are true or false. True False All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound interest. After the end of the second year and all other factors remaining equal, a future value based on compound interest will never exceed the future value based on simple interest. Everything else held constant, an account that earns compound interest will grow more quickly than an otherwise identical account that carns simple interest Amy is willing to invest $25,000 for five years, and is an economically rational investor She has identified three investment alternatives (L, M, and P) that vary in their method of calculating interest and in the annual interest rate offered. pent during the five year investment period, complete the following table and indicate whether Amy should invest Since she can only make one in in ach of the investments Amy is willing to invest $25,000 for five years, and is an economically rational investor. She has identified three investment alternatives (L, M, and P) that vary in their method of calculating interest and in the annual interest rate offered Since she can only make one investment during the five-year investment period, complete the following table and indicate whether Amy should invest in each of the investments. Note: When calculating each investment's future value, assume that all interest is compounded annually. The final value should be rounded to the nearest whole dollar Interest rate and Method Expected future Value Make this investment? 79 compound interest 6% simple interest 11% compound interest Investment Grade It Now Save & Continue Assignment Chapter 04 Time Value of Money The principle 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. Corpound interest occurs when interest is camned on prior periods' interest Which of the following is not one of these variables? The present value (PV) of the amount deposited The trend between the present and future values of an investment The duration of the deposit (n) The interest rate (c) 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%, 8%, or 17% Identify the interest rate that corresponds with each line. 20000 15006 : A) 15000 TIME periods Assignment: Chapter 04 Time Value of Money Line A corresponds to while tine B is consistent with . Line C corresponds to Investments and loans base their interest calculations on one of two possible methods: the interest and the interest methods. Both methods apply three variables-the amount of principal, the interest rate, and the investment or deposit period to the amount deposited or invested in order to compute the amount of interest. However, the two methods differ in their relationship between the variables Assume that the variables t, n, and PV represent the interest rate, investment or deposit period, and present value of the amount deposited or invested, respectively Which equation best represents the calculation of a future value (FV) using simple interest? a FV-PV+(PVxrxn) OFVPV (PV XIX) FV PV - (PVXIX) OFY - PV XIX Which equation best represents the calculation of a future value (PV) using compound interest? FV-PVX (1+1)" OFV PV OFV PV FV-PV + (PV XIX) Identify whether the following statements about the simple and compound interest methods are true or false True False All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound interest . Wter the end of the second year and all other factors remaining equal, a future value based on compound interest will never exceed the future value based on umple interest Everything else held constant, an account that can compound interest will grow more quickly than an otherwise identical account that can simple interest Army is willing to invest $25,000 for five years, and is an economically robional investor She has identified the investment alternatives L M and P) Assignment: Chapter 04 Time Value of Money Assume that the variables t, n, and PV represent the interest rate, investment or deposit period, and present value of the amount deposited or invested, respectively, Which equation best represents the calculation of a future value (FV) using simple interest? FV = PV + (PV XrXn) O FV-PVX (PV XIXn) OFV-PV - (PV XIXn) OFV-PV XIX Which equation best represents the calculation of a future Value (FV) using compound interest? FV-PVX (1+r)" OFV- DV (1+1) (1) OFV- OFV - PV + (PV XTXn) Identify whether the following statements about the simple and compound interest methods are true or false. True False All other variables held constant, investments paying simple interest have to pay significantly higher interest rates to earn the same amount of interest as an account earning compound interest. After the end of the second year and all other factors remaining equal, a future value based on compound interest will never exceed the future value based on simple interest. Everything else held constant, an account that earns compound interest will grow more quickly than an otherwise identical account that carns simple interest Amy is willing to invest $25,000 for five years, and is an economically rational investor She has identified three investment alternatives (L, M, and P) that vary in their method of calculating interest and in the annual interest rate offered. pent during the five year investment period, complete the following table and indicate whether Amy should invest Since she can only make one in in ach of the investments Amy is willing to invest $25,000 for five years, and is an economically rational investor. She has identified three investment alternatives (L, M, and P) that vary in their method of calculating interest and in the annual interest rate offered Since she can only make one investment during the five-year investment period, complete the following table and indicate whether Amy should invest in each of the investments. Note: When calculating each investment's future value, assume that all interest is compounded annually. The final value should be rounded to the nearest whole dollar Interest rate and Method Expected future Value Make this investment? 79 compound interest 6% simple interest 11% compound interest Investment Grade It Now Save & Continue