Adjust the annual formula for a future value of a single amount at 12 percent for 10 years to a semiannual compound ing formula. What are the interest factors(FVIE) before and after? Why are they different? FV=PVxFⅤ( Appendix A) i=12%,n=10 3.106 Annual 6%.n=20 3.207 Semiannual The more frequent compounding under the semiannual compound ing assumption increases the future value 9-6 If, as an investor, you had a choice of daily ly, or quarterly compounding, which would you choose? Why? The greater the number of compounding periods, the larger the future value The investor should choose daily compounding over monthly or quarterly What is a deferred annuity? a deferred annuity is an annuity in which the equal payments will begin at some future point in time 9-8 List five different financial applications of the time value of money Different financial applications of the time value of money Equipment purchase or new product decision, Present value of a contract providing future payments, Future worth of an investment Regular payment necessary to provide a future sum, Regular payment necessary to amortize a loan Determination of return on an investment Determination of the value of a bond CopyrightC 2005 by The McGray-Hill Companies, Inc.Copyright © 2005 by The McGraw-Hill Companies, Inc. S-306 9-5. Adjust the annual formula for a future value of a single amount at 12 percent for 10 years to a semiannual compounding formula. What are the interest factors (FVIF) before and after? Why are they different? ( ) i 6%, n 20 3.207 Semiannual i 12%, n 10 3.106 Annual FV PV FVIF Appendix A = = = = =  The more frequent compounding under the semiannual compounding assumption increases the future value. 9-6. If, as an investor, you had a choice of daily, monthly, or quarterly compounding, which would you choose? Why? The greater the number of compounding periods, the larger the future value. The investor should choose daily compounding over monthly or quarterly. 9-7. What is a deferred annuity? A deferred annuity is an annuity in which the equal payments will begin at some future point in time. 9-8. List five different financial applications of the time value of money. Different financial applications of the time value of money: Equipment purchase or new product decision, Present value of a contract providing future payments, Future worth of an investment, Regular payment necessary to provide a future sum, Regular payment necessary to amortize a loan, Determination of return on an investment, Determination of the value of a bond