For example the future value interest factor from

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Unformatted text preview: and 5 periods is 1.611. Dividing this value into 1.0 yields 0.621, which is the present value interest factor (given in Table A–2) for 10 percent and 5 periods. Review Questions 4–3 4–4 How is the compounding process related to the payment of interest on savings? What is the general equation for future value? What effect would a decrease in the interest rate have on the future value of a deposit? What effect would an increase in the holding period have on future value? CHAPTER 4 4–5 4–6 4–7 LG3 annuity A stream of equal periodic cash flows, over a specified time period. These cash flows can be inflows of returns earned on investments or outflows of funds invested to earn future returns. ordinary annuity An annuity for which the cash flow occurs at the end of each period. annuity due An annuity for which the cash flow occurs at the beginning of each period. EXAMPLE WW W Time Value of Money 143 What is meant by “the present value of a future amount”? What is the general equation for present value? What effect does...
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