The Method of Converting a Future Dollar Amount into Its

question 98

Multiple Choice

The method of converting a future dollar amount into its present dollar value by removing the time value of money is called ________.

• A) devaluing
• B) amortizing
• C) compounding
• D) discounting

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Definitions:

Invest

Directing financial investments towards the achievement of profit or income returns.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return, often used in the time value of money calculations.

Compounded Annually

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a loan or deposit.