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This The process for converting present values into future values is called compounding

Finance Jan 25, 2021

This 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? of four time-value-of- money variables O The present value (PV) of the amount invested O The inflation rate indicating the change in average prices O The duration of the investment (N) O The interest rate (I) that could be earned by invested funds
Yuri is willing to invest $35,000 for six years, and is an economically rational investor. He has identified three investment alternatives (A, B, and C) that vary in their method of calculating interest and in the annual interest rate offered. Since he can only make one investment during the six-year investment period, complete the following table and indicate whether Yuri should invest in each of the investments. Note: When calculating each investment's future value, assume that all interest is earned annually. The final value should be rounded to the nearest whole dollar. Make this investment? Investment Interest Rate and MethodExpected Future ValueYesNo 10% simple interest 690 compound interest 7% compound interest

Expert Solution

1)Compounding

2)correct option is "B" - The inflation rate indicating the change in average prices.

3)

under simple interest ,interest is received only principal amount invested whereas under compound interest ,interest is received on principal amount plus any interest accrued.

Investment Interest Future value  
A 10%

35000+[35000*10%*6]

35000+21000

56000

yes,since it gives highest future value
B 6%

35000[1+.06]^6

35000* 1.41852

49648

no
C 7%

35000[1+.07]^6

35000*1.50073

52526

no

**Future value under simple interest = Principal +[Principal *rate *number of years]

**Future value under compound interest = P[+i]^n

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