8. Future value of a single amount The time value of money is a financial concept that focuses on the idea that a dollar today will be worth more in the future. There are two key time value concepts: present value and future value. Looking at future value, the concept is that an amount in hand today will grow if it earns a specific rate of interest over a given period of time. This growth in value occurs not just because of the rate of interest being earned each year but also because that earned interest compounds. In other words, the interest earned in year one is added to the principal in year two, and interest is earned on this new principal balance; this continues through the set period of time. Work through the following scenario to understand future value and the concept of compounding interest. You have an eccentric aunt who has promised to deposit $5,625 in a savings account in your name. She has stated that you will not have access to the money for four years but that the money will be earning 7% interest. At the designated future date, the principal and interest will be yours to purchase a new car. First gather the relevant data by completing the following table.
Next use the following table of future value factors or your financial calculator to calculate the future value of this money in four years.
The account will have a balance of ___ in four years (rounded to two decimal places). |
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8. Future value of a single amount The time value of money is a financial concept...
8. Future value of a single amount The time value of money is a financial concept that focuses on the idea that a dollar today will be worth more in the future. There are two key time value concepts: present value and future value. Looking at future value, the concept is that an amount in hand today will grow if it earns a specific rate of interest over a given period of time. This growth in value occurs not just...
1% 2% 3% 496 5% 6% 7% 8% 1.020 1.040 1.061 1.082 1.103 1.124 1.145 1.166 1.030 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.041 1.082 1.126 1.170 1.216 1.262 1.311 1.360 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.062 1.126 1.194 1.265 1.340 1.419 1.501 1.587 1.072 1.149 1.230 1.316 1.407 1.504 1.606 1.714
Determine the amount of money in a savings account at the end of 3 years, given an initial deposit of $6,500 and a 12 percent annual interest rate when interest is compounded: Use Appendix A for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Future Value a. Annually b. Semiannually c. Quarterly Appendix A Future value of $1, FVF F...
1. Future valueThe 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 _______ . This process requires knowledge of the values of three of four time-value-of-money variables. Which of the following is not one of these variables?The inflation rate indicating the change in average pricesThe interest rate (I)...
Time value of money concept states that money received in the future is worth less today at present value and vice versa that money you have today (Present value) is worth more in the future due to compounding interest. Describe one of the many financial applications of the time value of money e.g. regular payment for amortization of a loan, present value of capital investment, annuity, etc. providing an example situation with dollar figures and utilizing the correct present...
The principal of the time value of money is probably the single most important concept in financial management. One of the most frequenty 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 fourtime-value-of-money variables. which of the following is not one of these This process requires ariables? O The interest rate (1) that could be eamed by deposited funds O The duration...
2. Future value Aa Aa E 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 . This process requires knowledge of the values of three of four time-value-of-money variables. Which of the following is not one of these variables? T O The interest rate (1) that...
Which of the following statements about the time value of money concept is true? It assumes that people prefer to consume things at some time in the future rather than today. It assumes that inflation rate remains constant for the foreseeable future. It means a dollar received today is worth more than a dollar received tomorrow. It refers to the fact that higher cash flows in earlier years are less desirable
Calculator Mastery Problem: Time Value of Money Time value of money Due to both interest earnings and the fact that money put to good use should generate additional funds above and beyond the original investment, money tomorrow will be worth less than money today. Simple interest Bolden Co., a company that you regularly do business with, gives you a $19,000 note. The note is due in three years and pays simple interest of 9% annually. How much will Bolden pay...
The concept of the time value of money generally implies that: Question 2 options: a dollar today is worth less than a dollar tomorrow you should spend all your money today and not save for the future profit, not cash flow, is important in valuation a dollar today is worth more than a dollar in the future none of the above are correct Could you finish the test its 25 questions ill tip you a extra session