Home › US CMA Part 2 › Finance › Time Value of Money › Discounting is described as the exact opposite o…
Discounting is described as the exact opposite of which process?
AIssuing a new bond
BCompounding interest
CRecording depreciation
DPaying a dividend
Answer & Solution
Correct answer: B. Compounding interest
1. Present value and future value run in opposite directions.
2. Compounding carries a present amount forward to a future value.
3. Discounting works back from a future amount to today.
4. This discounting process is the exact opposite of compounding interest.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 7 'Time Value of Money I: Single Payment Value'_
Related questions
Working out today's worth of a house price six years from now is an example of:Reinvesting both the 1,000 dollar principal and the 40 dollars of interest means year two A friend with 1,000 dollars principal earning 40 dollars in year one has an interest rate Under the rule of 72, an investment growing at 6 percent a year doubles in roughly:Under the rule of 72, an investment growing at 8 percent a year doubles in roughly:The rule of 72 estimates the time required to do what to a value?In the second-year example, the friend reinvests the principal together with the:If a compounding period is not specifically stated, it is always assumed to be: