Question
In: Finance
1) What are the four basic variables of the time value of money equation? 2) What...
1) What are the four basic variables of the time value of money equation?
2) What does the term compounding mean?
3) What happens to a future value as you increase the interest (growth) rate?
Solutions
Expert Solution
ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.
1. Time value of money equation Formula:
FV= PV*(1+r)^n
The basic 4 variables are:
FV = future value.
PV = present value.
r= interest rate for the period.
n = number of periods.
2. Compounding meaning: It means earnings from interest on Interest i.e the interest earned on capital is reinvested to earn Interest on Interest.
3. As per Time value of money equation Formula:
FV= PV*(1+r)^n
The future value directly proportional to the interest rate. The future value increases as the interest rate increases.
jeff jeffy answered 2 years agoRelated Solutions
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