Multiple Choice
What is the future value of \$10 invested for 3 years at an annual interest rate of 5\% compounded annually?
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10. Time Value of Money
Time Value of Money Equations
Multiple Choice
Which one of the following variables is the exponent in the present value formula \(PV = \dfrac{FV}{(1 + r)^n}\)?
A
r (interest rate)
B
FV (future value)
C
n (number of periods)
D
PV (present value)
Verified step by step guidance1
Understand the present value formula: \(PV = \dfrac{FV}{(1 + r)^n}\). This formula calculates the present value (PV) of a future amount (FV) discounted by an interest rate (r) over a number of periods (n).
Identify the components of the formula: PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.
Recognize the role of the exponent in the formula: The term \((1 + r)^n\) involves raising \((1 + r)\) to the power of n, which means n is the exponent in this formula.
Understand the significance of n: The number of periods (n) determines how many times the interest rate (r) is compounded over time, affecting the discounting process.
Confirm the correct answer: Based on the formula structure, n (number of periods) is the variable that serves as the exponent in the present value formula.
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