Question

Compound interest is interest you earn on the initial investment and on previous interest.

True or False

Future value is how much an amount today will grow to be in the future.

True or False

The more frequent the rate of compounding, the more interest that is earned on previous interest, resulting in a higher future value.

True or False

An annuity includes cash payments of equal amounts over time periods of equal length.

True or False

The value of $1 today is worth more than $1 one year from now.

True or False

Answer 1

1) True, compounding interest is interest you on on the initial investment as well as on the previous interest. In compounding interest the interest earned on the principal amount as well as interest is earned on the actual interest which is earned in the previous year also.

2) True , future value of an amount means that its actual value in the future at rate which it will grow. In other words if amount is growing by a certain percentage then investing the amount today will give a certain amount in future by taking the growing interest into consideration and that will be its future value.

3) True , as compounding interest is that interest which is earned on the interest of the previous year or previous interval therefore more the frequency of the rate of compounding interest more the interest will be earned as well as higher will be the future value because at every point the interest get credited its compounding effect increases and therefore more interest is likely to be received.

4) True, annuity is a method whereby series of equal amount of cash is deposited or invested at equal intervals over period of time.

5) True, as the time value of money decreases therefore the value of $ 1 today is worth more than $ 1 one year from now.

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