RWJ4

MKTG (with Marketing CourseMate with eBook Printed Access Card)

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CHAPTER 4 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY Answers to Concepts Review and Critical Thinking Questions 1. 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. 2. Future values grow (assuming a positive rate of return); present values shrink. 3. The future value rises (assuming a positive rate of return); the present value falls. 4. It depends. The large deposit will have a larger future value for some period, but after time, the smaller deposit with the larger interest rate will eventually become larger. The length of time for the smaller deposit to overtake the larger deposit depends on the amount deposited in each account and the interest rates. 5. It would appear to be both deceptive and unethical to run such an ad without a disclaimer or explanation. 6.
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RWJ4 - CHAPTER 4 INTRODUCTION TO VALUATION: THE TIME VALUE...

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