Essentials of Corporate Finance
Essentials of Corporate Finance
8th Edition
ISBN: 9780078034756
Author: Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 4, Problem 4.1ACQ
Summary Introduction

To discuss: The meaning of future value of an investment.

Introduction:

The time value of money implies that the cash in hand at present has a higher value than the cash receipt promised in the future. In other words, time value of money states that the money at present is worth more than the money at a future date. The interest or return earned on the investment will help in offsetting the value lost due to time value of money.

Expert Solution & Answer
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Explanation of Solution

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

Example:

If Person A is invests $100 in a fixed deposit account at 10 percent interest, then the value of $100 after one year (future value) will be $110($100×1.10).

Conclusion

The future value of money refers to the amount of dollars that an investment grows over a definite period at a given rate of interest rate.

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