Q. Illustrate Compound Value Concept?
The Compound Value Concept is used to find out the FV of present money. It is the same as the concept of compound interest, wherein the interest earned in a preceding year is reinvested at thePrevailing rate of interest for the remaining period. Thus, the accumulated amount (principal + interest) at the end of a period becomes the principal amount for calculating the interest for the next period. The compounding
technique to find out the FV of present money can be explained with reference to:
1) The FV of a single present cash flow, and
2) The FV of a series of cash flows.