*This preview shows
page 1. Sign up
to
view the full content.*

**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...

View
Full
Document