ECONOMICS
SAVING AND INVESTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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time and savings
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time and interest rate
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inflation and interest rate
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None of the above
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Detailed explanation-1: -The time value of money takes several things into account when calculating the future value of money, including the present value of money (PV), the number of compounding periods per year (n), the total number of years (t), and the interest rate (i).
Detailed explanation-2: -The exact time value of money is determined by two factors: Opportunity Cost, and Interest Rates.
Detailed explanation-3: -In general, you calculate the time value of money by assessing a discount factor of future value factor to a set of cash flows. The factor is determined by the number of periods the cash flow will impacted as well as the expected rate of interest for the period.
Detailed explanation-4: -The equation goes like this: PV = FV (1+i)^-n, where PV equals present value, FV equals future value, i equals annual inflation, and n equals number of years. Assuming an inflation rate of 3% (or 0.03), the equation looks like this: PV = $100, 000 * 1.03^-3. The present value of $100, 000 in three years is $91, 514.
Detailed explanation-5: -Risk and Uncertainty. Future is always uncertain and risky. Inflation: In an inflationary economy, the money received today, has more purchasing power than the money to be received in future. Consumption: Investment opportunities: