Answer
a.When a business invests a single sum at a specific interest rate and for a particular duration, the present values can be used to calculate the invested amount's future value, which is currently unknown. The calculation would involve the accumulation of cash flows up to specific times.
b.If a business expects to get a known single sum in the future, the amount's present value (currently unknown) can be computed by discounting it for specific periods and a particular interest rate. Discounting would entail reducing the single amount to the degree that the future amount is greater than the present value.
c.Computations of amounts due in life insurance contracts would entail the application of annuities. The future value of the amounts would be obtained by summing up all the rents paid throughout the contract and adding the compound interest accumulated in the periodic rent.
Work Step by Step
a.When a business invests a single sum at a specific interest rate and for a particular duration, the present values can be used to calculate the invested amount's future value, which is currently unknown. The calculation would involve the accumulation of cash flows up to specific times.
b.If a business expects to get a known single sum in the future, the amount's present value (currently unknown) can be computed by discounting it for specific periods and a particular interest rate. Discounting would entail reducing the single amount to the degree that the future amount is greater than the present value.
c.Computations of amounts due in life insurance contracts would entail the application of annuities. The future value of the amounts would be obtained by summing up all the rents paid throughout the contract and adding the compound interest accumulated in the periodic rent.
