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Foundations Of Financial Management
Found in: Page 279
Foundations Of Financial Management

Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

Short Answer

How is the future value related to the present value of a single sum?

Answer

The future value of a single sum is computed by applying the relevant interest rate to the present value of the sum. So, future value and present value are related to each other.

See the step by step solution

Step by Step Solution

Step 1: Meaning of time value of money

The time value of money states that the dollar amount received today is worth more than a similar dollar amount received in the future.

Step 2: Relationship between present value and future value

The future value of a particular sum of money is obtained by adding the time value of money to the present value of money. The time value of money is computed by using a specific rate of interest. This is why both the future value and the present value of a certain sum are related to one another.

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