What would you like to do?
How might you use the principles of the time value of money to your financial benefit?
(a) list various financial applications of the time value of money (b) Explain the components of a discount/ interest rate
Time Value of Money or TVM is a concept that is used in all aspects of finance including: 1. Bond valuation 2. Stock valuation 3. Accept/reject decisions for project manage…ment 4. Financial analysis of firms 5. And many others.
Time Value of Money Time Value of Money is an important concept in financial management. It is one of the important tools used in project appraisals to compare vari…ous investment alternatives, and solve problems involved in loans, mortgages, leases, savings, and annuities. A key concept behind Time Value of Money is that a single sum of money or a series of equal, evenly spaced payments or receipts promised in the future, can be converted to an equivalent value today. Conversely, you can determine the value to which a single sum or a series of future payments will grow to at some future date. The former is called Present Value of Cash Flows and the later is called Future Value of Cash Flows.
Answer The cost of borrowing or lending to be paid for the use of its benefits, for which you are exchanging its use for.
Managers might use the grapevine to their benefit in order to find out about any employee dissatisfaction. They can also find out about potential problems that are occurri…ng in areas of the company.
Fossil fuels benefits include relatively easy to access, reliable, and abundance. Unlike some of the alternatives, fossil fuels are not weather dependent.
Equipment purchase or new product decision, Present value of a contract providing future payments, Future worth of an investment, Regular payment necessary to provide a future… sum, Regular payment necessary to amortize a loan, Determination of return on an investment, Determination of the value of a bond.
Papyrus was used to make paper in ancient Egypt. The papyrus was very valuable because it allowed the people of Egypt to keep records and write down histories.
The time value of money is one of the corner stones of finance. It states that a dollar now is worth more compared to dollar later in time. And if you think about it, it is co…rrect. Here is why: Imagine two situations: - you have a $1000 now in your pocket - you will receive $1000 in one year Lets say that you do NOT need the $1000 now or later; however you would like to have them. Now, if you had the money in your pocket today and you don't need them, what you can do is to invest them in the back and maybe you can earn couple of % interest on them (this will at least help you negate the effects of inflation). However, if you are to receive the money in one year, you will have to pass on the opportunity to invest and make some interest on them. Moreover, when you receive the money next year, they will be a $1000; however their buying power will be slightly less thanks to inflation. So to summarize - money now are worth more because they are at your disposal and they can earn you interest. Money later earn you no interest and suffer from inflation (alright, they gain from deflation too; however money in the bank do that too). This is a simple example but you can imagine in different terms - lets say a company receiving money to pay off debt today rather in a month, thus saving some interest costs.
bonds valuation is the TVM concept used to measure the carring value of investments in bonds.
suppose a company expects to get $100 one year from today. If it had that $100 now, it could invest the money--for example, earn interest from a bank--and have more than $100 …next year. If the money earned 5 percent, the company would have $105 next year
In Video Games
The importance of time value of money in financial decision making is because money in your today is worth more than the sum at a future date. If you take the money you ha…ve today and invest it, you will have more money in the future than if you wait to take the money.
Investing in a fidelity municipal money market reaps many financial benefits. The longterm benefits greatly outweigh the short term costs as long as you are financially respon…sible about your decision.
As a professional company they can offer you a variety of employees at your service to help you plan your financial situation. THis way you are garunteed the results you would… like.
Why is the concept of the time value of money a very important financial concept both for organizations and for individuals?
The concept of the time value of money (TVM) is a very important financial concept, both for organizations and for individuals because it is a tool used to gauge compariso…n of investment alternatives, and to solve problems concerning mortgages, loans, leases,savings, and annuities.