The Relationship Between a Future Value and Its Corresponding Present

question 93

Multiple Choice

The relationship between a future value and its corresponding present value is determined by the discount rate and ________.

• A)number of compounding periods
• B)length of compounding periods
• C)principal balance
• D)time of year

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Definitions:

Discount Rate

The discount rate utilized in DCF analysis for assessing the present worth of upcoming cash flows.

Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.

Investment

Assets or items acquired with the goal of generating income or appreciation in the future.

Annual Effective Rate

The interest rate that is adjusted for compounding over a given period, showing the real return on savings or cost of borrowing.