The pindpa of the time value of money is probsbly the single mast important concept in financial maragemert. One othe most frequently encounteed applcations imolves the calculatin of afuture value. Ths poces requres The process for conveting present values into future values caed krowledge of the values of threeof four time-value-of-moner variables. which of the fallowing b notone of these verabes7 O The duation ofthe imemet (N) O The presert value (Pi) ofthe amount imsted O The iation rate indicating the change in average prices The inte st rate I) that could be eamed by rested funds Al other things bang qual,the numerial dference between pesert and future value mT ponds to the amaunt of irtett armed during the dapat orretmert pariad. Each Ine on te flowing graph com ponds to an irtest rate: 0%12%, or 23 %tdert, the itett rate thCBTtsponds with ach Ine. LineA ine B Line C Irwetments and lcans base their interst caculatians onone o to poble methads: the the rate, and the inv mert or dspost pariad-tte maunt dtposted or invested in order to compute the mount of intest Hawever, the two methads differ in their relatianship between the varabes. ntersst and intert methads. Both methads appy three varlablesthe amauntof prindpal, the intess Assum that the variables , N, and PV repesertthe hte rate, imestmert ordtpost parad, and pesert value othe amaunt. depositesd orivted, respectively. Which squation best represents the cacuiation of afuture value Simple intes? tdert, whher the fullowing statements about the simple and compound its st methods are true or false. Statement True False Everything hald constart, an account th sams compound inte "il grow more quiddy tan anotherwise identical account that ms simple inst Al other fact rs bang equal, bcth the simple itetard the compound intst methods wil not greate the maunt ofmed inte by the end ofthe fi t year, After the end of the second year.tnal ther fatns remainingequal, a future value based on compound intetwil ecend afubure value based on simple intest. Marynllng to invest $45,000 for eight years, and an economicaly rational investor. She has identfied thr investment alternatives (L, M, and P] thvary ither method of calculating intent and inthe arrual rte rate offerad. Since she canonly make one ivtmet during the eght-year iemet psriad, complete the following table rd indicatenhther Mary should invest inch of the investments. samed arrually. The final value Note: when calculatirg ach lme mert's future value, asume tat al intest should be naunded to the nearest whale dollar. Nake this Investment Interest Rate and Nethod Expected Future ValueYeNo 7% compound itett
