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Time Value of Money: Formula Interest Annuities Perpetuities Video Lecture | Quantitative Aptitude for CA Foundation

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FAQs on Time Value of Money: Formula Interest Annuities Perpetuities Video Lecture - Quantitative Aptitude for CA Foundation

1. What is the formula for calculating compound interest?
Ans. The formula for calculating compound interest is A = P(1 + r/n)^(nt), where A is the future value of the investment, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.
2. How is the present value of an annuity calculated?
Ans. The present value of an annuity can be calculated using the formula PV = C * [(1 - (1 + r)^(-n))/r], where PV is the present value, C is the periodic payment, r is the interest rate per period, and n is the number of periods.
3. What is the formula for calculating perpetuities?
Ans. The formula for calculating the present value of a perpetuity is PV = C / r, where PV is the present value, C is the periodic cash flow, and r is the discount rate.
4. How does the time value of money concept apply to financial decision-making?
Ans. The time value of money concept recognizes that money today is worth more than the same amount in the future due to the potential to earn interest or returns. It is used in financial decision-making to compare the value of cash flows occurring at different points in time and to determine the profitability or attractiveness of investments.
5. What are some practical applications of the time value of money concept?
Ans. The time value of money concept is applied in various financial calculations and decisions, such as determining mortgage payments, evaluating investment opportunities, comparing different loan options, calculating retirement savings, and analyzing the cost-effectiveness of projects over their lifespan.
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