Chapter 9 Discussion Questions 9-1 How is the future value(Appendix a)related to the present value of a single sum(Appendix B)? The future value represents the expected worth of a single amount, whereas the present value represents the current worth FV=PV(1+r future value Present va lu (1+i 9-2 How is the present value of a single sum(Appendix b)related to the present value of an annuity(Appendix D)? The present value of a single amount is the discounted value for one future payment, whereas the present value of an annuity represents the discounted value of a series of consecutive payments of equal amount why does money have a time value? Money has a time value because funds received today can be reinvested to reach a greater value in the future. a person would rather receive $1 today than I in ten years, because a dollar received today, invested at 6 percent, is worth $.791 after ten years Does inflation have anything to do with making a dollar today worth more than a dollar tomorrow? Inflation makes a dollar tod ay worth more than a dollar in the future. Because inflation tends to erode the purchasing power of money, funds received today will be worth more than the same amount received in the future S-305 Copyright C2005 by The McGra-Hill Companies, Inc.Copyright © 2005 by The McGraw-Hill Companies, Inc. S-305 Chapter 9 Discussion Questions 9-1. How is the future value (Appendix A) related to the present value of a single sum (Appendix B)? The future value represents the expected worth of a single amount, whereas the present value represents the current worth. FV = PV (1 + I) n future value ( ) Present va lue 1 1 PV FV         + = n i 9-2. How is the present value of a single sum (Appendix B) related to the present value of an annuity (Appendix D)? The present value of a single amount is the discounted value for one future payment, whereas the present value of an annuity represents the discounted value of a series of consecutive payments of equal amount. 9-3. Why does money have a time value? Money has a time value because funds received today can be reinvested to reach a greater value in the future. A person would rather receive $1 today than $1 in ten years, because a dollar received today, invested at 6 percent, is worth $1.791 after ten years. 9-4. Does inflation have anything to do with making a dollar today worth more than a dollar tomorrow? Inflation makes a dollar today worth more than a dollar in the future. Because inflation tends to erode the purchasing power of money, funds received today will be worth more than the same amount received in the future