FUTURE VALUE OF A SINGLE CASH FLOW

Question 1

future value after N periods:

Answer 1

FVN= PV(1 + r)^N

Question 2

simple interest

Answer 2

the interest rate times the principal

Question 3

Principal

Answer 3

is the amount of
funds originally invested

Question 4

phenomenon
known as compounding.

Answer 4

The interest earned on interest provides the first glimpse

Question 5

The most important point to remember about using the future value equation is
that the stated interest rate, r, and the number of compounding periods, N

Answer 5

must be
compatible.

Question 6

(1 + r)^N

Answer 6

this factor
is called a future value factor

Question 7

The fact that the present value and the future value are separated in time has
important consequences:

Answer 7

• We can add amounts of money only if they are indexed at the same point in time.
• For a given interest rate, the future value increases with the number of periods.
• For a given number of periods, the future value increases with the interest rate.