Question

The process for converting present values into future values is called . 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? The inflation rate indicating the change in average prices The duration of the investment (N) The interest rate (I) that could be earned by invested funds The present value (PV) of the amount invested

Answer 1

Answer:

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.

The inflation rate indicating the change in average prices is not one of the values of three of four time-value-of-money variables.

Explanation:

Compounding is the process whereby interest is credited to an existing principal amount as well as to interest already paid.

Compounding can thus be construed as interest on interest - the effect of which is to magnify returns to interest over time.

The three variables involved is interest, duration and present value. Therefore, The Inflation rate indicating the change in average prices is not one of the values of three of four time-value-of-money variables