Question

The process for converting present values into future values is called compounding. This process requires knowledge of the values of three of four time-value-of-money variables. Which of the following is not one of these variables?

A. The interest rate (I) that could be earned by deposited funds
B. The present value (PV) of the amount deposited
C. The duration of the deposit (N)
D. The trend between the present and future values of an investment

Answer 1

Answer:

D. The trend between the present and future values of an investment

Explanation:

The future value of an investment formula is:

FV = PV (1 + i)^n

Where:

• FV = Future Value of the investment
• PV = Present Value of the investment
• i = interest rate
• n = number of compounding periods or duration of the deposit

We can determine that the trend between the present and future values of an investment is not needed to find the future value of an investment, because such trend is not part of the future value of an investment formula, while all the other variables are part of it.