CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY Answers to Concepts Review and Critical Thinking Questions 1. The four parts are the present value (PV), the future value (FV), the discount rate ( r ), and the life of the investment ( t ). 2. Compounding refers to the growth of a dollar amount through time via reinvestment of interest earned. It is also the process of determining the future value of an investment. Discounting is the process of determining the value today of an amount to be received in the future. 3. Future values grow (assuming a positive rate of return); present values shrink. 4. The future value rises (assuming it’s positive); the present value falls. 5. It would appear to be both deceptive and unethical to run such an ad without a disclaimer or explanation. 6. It’s a reflection of the time value of money. TMCC gets to use the $1,163. If TMCC uses it wisely, it will be worth more than $10,000 in thirty years. 7.
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This note was uploaded on 09/08/2009 for the course FIN 311 taught by Professor Layish during the Spring '08 term at Binghamton.