Study Questions

  1. 5–1. What is the time value of money? Give three examples of how the time value of money might take on importance in business decisions.

  2. 5–2. The processes of discounting and compounding are related. Explain this relationship.

  3. 5–3. What is the relationship between the number of times interest is compounded per year on an investment and the future value of that investment? What is the relationship between the number of times compounding occurs per year and the EAR?

  4. 5–4. How would an increase in the interest rate (i) or a decrease in the number of periods (n) affect the future value (FVn) of a sum of money?

  5. 5–5. How would an increase in the interest rate (i) or a decrease in the number of periods until the payment is received ...

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