Question

Compounding Periods - As you increase the lenth of time involved, what happens to future values ? what happens to presnt values?

Answer 1

Future Values:

It is the amount at a specific future date , which the amount invested today would become if compunded at given rate of interest.

As the length of time increase, the period of compounding increases and therefore Future value of the amount invested today increases. Therefore we can say that Componding Period and Future value are directly proportional to each other.

Present Value:

It is the Todays value of an amount standing on a Specific Future date discounted at a given rate of interest. As the length of time increases, discounting period increases and therefore the Present value amount decreases. So we can say that Compunding period(said as discounting period for calculation of PV) and PV are inversely proportional.