BSM410_WK4_SBA

Value of Money in your OpenStax Principles of Finance textbook, complete the following:

Module 4 Questions

1. Explain in your own words why money today is worth more than the same amount in the future. Include an example to illustrate the concept.
2. Calculate the future value (FV) of a $2,000 lump sum invested for 5 years at 8% annual interest (assume annual compounding).
3. Calculate the present value (PV) of receiving $10,000 five years from now if the discount rate is 6%.
4. A friend wants to save for retirement and will deposit $1,000 each year for 20 years earning 7% interest. Calculate the future value of this annuity.
5. Explain how compounding frequency (annual vs. quarterly vs. monthly) impacts the amount of interest earned.
6. Describe the difference between the nominal interest rate and the effective annual rate (EAR), and explain why the EAR is important for comparing investment opportunities.

Requirements

• Show all calculations clearly where applicable.
• Use correct financial formulas (show them in your work).
• All work must be in your own words and original.
• Be thorough, use academic tone (no text-talk or conversational tone, and no plagiarism).
• Spell-check and proofread before submitting.