Value of Money in your OpenStax Principles of Finance textbook, complete the following:
Module 4 Questions
- Explain in your own words why money today is worth more than the same amount in the future. Include an example to illustrate the concept.
- Calculate the future value (FV) of a $2,000 lump sum invested for 5 years at 8% annual interest (assume annual compounding).
- Calculate the present value (PV) of receiving $10,000 five years from now if the discount rate is 6%.
- A friend wants to save for retirement and will deposit $1,000 each year for 20 years earning 7% interest. Calculate the future value of this annuity.
- Explain how compounding frequency (annual vs. quarterly vs. monthly) impacts the amount of interest earned.
- Describe the difference between the nominal interest rate and the effective annual rate (EAR), and explain why the EAR is important for comparing investment opportunities.
Requirements
- Show all calculations clearly where applicable.
- Use correct financial formulas (show them in your work).
- All work must be in your own words and original.
- Be thorough, use academic tone (no text-talk or conversational tone, and no plagiarism).
- Spell-check and proofread before submitting.
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