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Is the face value of an investment the same as its future value?
No, the face value of an investment is not the same as its future value. The face value is the initial value of the investment, while the future value is the value it will have at a later date after earning interest or experiencing changes in market value.
What happens to the future value of money when the inflation rate exceeds the interest rate?
it increases
What is the future value of an investment of 500 today, with an interest rate of 5 per year, compounded annually, after 5 years?
The future value of a 500 investment with a 5 annual interest rate compounded annually after 5 years is approximately 638.14.
How do you calculate the value of a bond?
The value of a bond is calculated by adding up the present value of its future cash flows, which include periodic interest payments and the bond's face value at maturity. This calculation takes into account factors such as the bond's interest rate, time to maturity, and the current market interest rates.
Why is the price of a bond inversely related to the rate of interest?
A bond pays fixed (defined in the bond) cashflows at discrete points in the future. If interest rates are hight, these future fixed amounts are of lesser value in the present than when interest rates are low. For example, if I were to pay you $100 in one year and interest rates are 10%, then the value of the money, in today's value is $90.91. If interest rates were zero, then it would be worth $100 today. A bond's value is merely the sum of a whole bunch of examples like this.
