Assume you deposit $10,000 today in an account that pays 6% interest. How much will you have in five years?

= $10,000 (FVIF of 6%, 5years)

= $10,000 * 1.3382

= $13,382

Calculating Present Values

Suppose you have just celebrated your 19th birthday. A rich uncle has set up a trust fund for you that will pay you $150,000 when you turn 30. If the relevant discount rate is 9%, how much is the fund worth today?

We know,

Present Value = Future Cash Flow / (1 + Required Rate of Return) ^Number of Years You Have To Wait For The Cash Flow

Given,

Present value = $150,000 / (1 + .09) ^ 11

= $150,000 / 2.5804

= $ 58,130

Therefore,

The present value is thus about $58,130.

Calculating Rates of Return

You’ve been offered an investment that will double your money in 10 years. What rate of return are you being offered? Use the Rule of 72 to calculate the answer.

Suppose, we spend $1,000, than according the question the money will be double in 10 years which will $2,000. So,

Present value = $1,000

Future Value = $2,000

Time = $ 10 year

$2,000 = $1,000 * (1 + r)^10

2 = (1 + r) ^10

2(1/10) = 1 + r

r = 7.18%

For each of the following, compute the future value:

Present ValueYearsInterest RateFuture Value

$2,2501110% $6419.51

$8,74278% $14,982.25

$76,3551417% $687,764.17

$183,79687% $315,795.75

For each of the following, compute the present value:

...Rita Collins
FIN 501- Strategic Corporate Finance
Module 2: Case Study
T.U.I
According to Wikipedia.com, “Present value is the value on a given date of a future payment or series of future payments, discounted to reflect the timevalue of money and other factors such as investment risk. Present value calculations are widely used in business and economics to provide a means to compare cash flows at different times on a meaningful "like to like" basis.” (1) In this paper, we are going to examine why the concept of present value is so important to corporate finance. We are also going to complete some example problems concerning present value, future value and annuities. Let’s examine why the concept of present value is important to corporate finance and why it’s often the first topic taught in any finance class.
Why is the concept of present value important to corporate finance? According to Wikipedia.com, “The concepts of present and future value hinge upon the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal.”(2) Present value is important to corporate...

...and Future Price of Money
Trident University International
FIN 501
Module 2: Case Assignment
Dr. John Halstead
One of the most important concepts about saving and investing is the timevalue of money. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities. This means money paid out or received in the future is not equivalent to money paid out or received today because inflation erodes money’s buying power. Basically, the power of time is on a person’s side and the premise that cash in hand today is more valuable than the same amount in the future due to its capability of earning interest. There are three factors affecting how much an investment will grow: time, money, and interest rate. TimeValue of Money is a concept that is very important in financial management. It affects business, personal, and government finance (Harvey, 2012) Within this paper we will discuss the definition of TimeValue of Money and identifies the importance of financial managers understanding the concept.
Time, Money and Interest Rates
Time has an important impact on the future...

...Abstract
In this paper, Team C will discuss the concept of the timevalue of money and the importance of this concept in business. Also, we will provide a demonstration of the use of the formula used to calculate the present and future values of money to get the present value of $100 using different periods of time and interest rates.
TimeValue ofMoney
In the world of business, it is essential to know what TVM represents and how it helps make better choices in how we spend our money. TVM is also known as TimeValue of money which is a given amount of interest earned in a period of time (Wikipedia, 2011). Each member in group “C” will use 100 as our present value and we will choose an interest rate and period. Timevalue of money concept is used to determine present and future values of money. “The timevalue of money refers to the relationship between time, money, and the rate of interest.” (Letsche, 2011). The formula consist of four components FV = Future Value, PV = Present Value, i = the interestrate per period and n= the number of compounding periods (TeachMeFinance.com)....

...Introduction
The timevalue of money is an important concept in financial management. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities. The timevalue of money can be defined as the value of money received today instead of in the future. This is based on the premise that cash in hand today is more valuable than the same amount in the future due to its capability of earning interest. For investors, this is single most important concept in the world of finance. This paper will discuss the different financial applications of the timevalue of money. This paper will also describe the components of interest and highlight various methods of calculating timevalue of money using different interest scenarios.
Financial Applications of the TimeValue of MoneyTimevalue of money has many useful applications. One of the most important uses is that it helps to measure the trade-off in spending and saving. This can have important consequences for your personal budgeting. If market interest rates are at 5%, one may decide that the timevalue of money is...

...TimeValue of Money
The timevalue of money (TVM) or, discounted present value, is one of the basic concepts of finance and was developed by Leonardo Fibonacci in 1202. The timevalue of money (TVM) is based on the premise that one will prefer to receive a certain amount of money today than the same amount in the future, all else equal. As a result, when one deposits money in a bank account, one demands (and earns) interest. Money received today is more valuable than money received in the future by the amount of interest we can earn with the money. If $90 today will accumulate to $100 a year from now, then the present value of $100 to be received one year from now is $90.
To fully understand timevalue of money one must first understand a few terms. Present value and future value are totally different. They also have their disadvantages and advantages; it just depends on how they are used. Of course, present value is what you have right now at this present time. While future value is the amount of money you will have at a given time in the future. Future value has...

...
TIMEVALUE OF MONEY (CHAPTER 4)
1. Future value (FV), the value of a present amount at a future date, is calculated by applying compound interest over a specific time period. Present value (PV), represents the dollar value today of a future amount, or the amount you would invest today at a given interest rate for a specified time period to equal the future amount. Financial managers prefer present value to future value because they typically make decisions at time zero, before the start of a project.
2. A single amount cash flow refers to an individual, stand alone, value occurring at one point in time. An annuity consists of an unbroken series of cash flows of equal dollar amount occurring over more than one period. A mixed stream is a pattern of cash flows over more than one time period and the amount of cash associated with each period will vary.
3. Compounding of interest occurs when an amount is deposited into a savings account and the interest paid after the specified time period remains in the account, thereby becoming part of the principal for the following period. The general equation for future value in year n (FVn) can be expressed using the specified notation as follows:
FVn ’ PV × (1 + i)n
4. A decrease...

...Timevalue of money ("TVM") is defined as the idea that money available at the present time is worth more than the same amount in the future, due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also often referred to as "present discountedvalue" (Answers Corporation, 2006). TVM concepts help people like managers or investors understand the benefits and the future cash flow to help them determine if the future benefits will justify the initial cost of the project or investment. To recognize how annuities (a set of fixed payments over a specified length of time) affect the TVM, managers need to consider the factors of interest rates, opportunity cost, future and present values of the money, and compounding. In this paper, I will explain how annuities affect TVM problems and investment outcomes. I will also address the impact of the following on TVM; interest rates and compounding, present value, opportunity cost, and annuities as well as the Rule of 72.
How do annuities affect TVM problems outcomes? Annuities are an investment that promise a constant amount of cash over a certain period. Since annuities...

...MGCR 341: Finance 1
Vadim di Pietro
Assignment 1: Solutions
Topic: Timevalue of money: Retirement savings problem
[pic]
1) Today is July 1, 2010. You just graduated university. You plan to take a year off to travel and then start work one year from today. Your first monthly salary of $5,000 will be paid on August 1, 2011. Assume your monthly salary will increase by 0.8% each month thereafter, until you retire. Suppose that you plan to retire on July 1, 2041, right after receiving your last paycheck on that same day. For each pay check, you save a fraction of your salary and the rest is used to pay off your bills. You expect to live for another 40 years after the day you retire. Your goal is to save enough of each pay check such that in retirement you can afford to purchase each month the same amount of goods that $1,000 can buy today. Assume that in retirement your purchases are made each month with the first purchase on August 1, 2041, and the last purchase on July 1, 2081.
The inflation rate is 0.5% per month, and the nominal interest rate is 12% APR, with monthly compounding.
a) What is the per-month real interest rate?
The nominal monthly interest rate is given by APR/12 = 12%/12 = 1%.
If nominal dollars grow by 1% per month, but prices increase by 0.5% per month, then the purchasing power of a risk free investment increases by the real monthly interest rate of
[pic]...

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