A.Q. Joe won a lottery jackpot that will pay him $12,000 each year for the next ten years. If the market interest rates are currently 12%, how much does the lottery have to invest today to pay out this prize to Joe over the next ten years?

A.
If prize = (principal) x (rate) x (time)
prize = (12,000) x (0.12) x (10)
prize = (12,000) x (1.2)
prize = $144,000 total invested by the lottery to pay our winnings of 12,000 for the next ten years.

B.Q. Mary Just deposited $33,000 in an account paying 10% interest. She plans to leave the money in this account for seven years. How much will she have in the account at the end of the seventh year?

A.
Traditional method of finding the Future Value:

FV end of year 1 = $33,000+0.10($33,000) = $36,300
FV end of year 2 = $33,000+0.10($36,300) = $39,930
FV end of year 3 = $33,000+0.10($39,930) = $43,923
FV end of year 4 = $33,000+0.10($43,923) = $48,315.30
FV end of year 5 = $33,000+0.10($48,315.30) = $53,146.83
FV end of year 6 = $33,000+0.10($53,146.83) = $58,461.513
FV end of year 7 = $33,000+0.10($58,461.513) = $64,307.6643

C.Q. Mary and Joe would like to save up to $10,000 by the end of three years from now to buy new furniture for their home. They currently have $2500 in a savings account set aside for the furniture. They would like to make equal year end deposits to this savings account to pay for the furniture when they purchase it three years from now. Assuming that this account pays 8% interest, how much should the year end payments be?

A.
Current savings alone with .08% interest after three years would equal $3149.28, a $6850.72 difference in what is needed to bring Mary and Joes savings to $10,000.

...ACFI 340 – TAKE HOME QUIZ - FALL, 2011
Below you will find a series of independent questions involving present value concepts. Show all factors used in present value computations and indicate the table that was used (FV of $1, PV of $1, etc). If you use a financial calculator, show the key strokes you used to compute the answer: N, i/y, PV, FV and PMT
Please download a copy of this quiz and type your answers after each question. Each student should design his/her own spreadsheets. Where amortization schedules are required, they should be labeled as exhibits and attached at the end of your quiz. On mortgage amortization schedules, attach only the first and last page of the schedule.
No “canned program” spreadsheets should be used. While you may discuss the quiz with one another, you are expected to prepare your own solutions independently of other students. Obviously identical spreadsheets will result in a penalty of 30 points on your total score.
a. Sacks Corporation bought a new machine and agreed to pay for it in 5 equal installments of $40,000 at the end of each of the next 5 years. Assuming that the prevailing rate of 6% applies to this contract, how much should Sacks record as the cost of the machine?
b. Design amortization schedules showing the payments under the assumption:
1. Interest is included in the face amount of the note.
2. The note is an interest bearing note.
c. Prepare the entry to...

...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 a tendency to be deep;...

...TimeValue of Money
“Money has a timevalue associated with it and therefore a dollar received today is worth more than a dollar to be received in the future” (Block, Hirt, 2005). The timevalue of money may be based on the concept that one would prefer to receive a fixed payment today rather than the same fixed payment at a future date. This paper discusses some of the key components of timevalue of money and identifies the application of timevalue of money in various businesses.
Commercial banks use various timevalue of money formulas daily. One example of the application of timevalue of money in commercial banks is through mortgages. Using the formula for present value of an annuity, a bank will solve the formula to determine the monthly payment amount, the borrower’s monthly mortgage payment.
Credit card financial service companies are commonly known to issue private student loans. Therefore, credit card companies would use the timevalue of money to determine loan payment schedules and the number that students most fear, the ending balance, the future value of the loan. Credit card companies would...

...TimeValue of Money
The timevalue of money relates to many activities and decision in the financial world. “Understanding the effective rate on a business loan, the mortgage payment in a real estate transaction, or the true return on an investment depends on understanding the timevalue of money” (Block, Hirt, 2005). The concept of timevalue of money helps determine how financial assets are valued and how investors establish the rates of return they demand. Many different types of companies use the timevalue of money, such as commercial banks, credit card companies, insurance companies, retirement advisors, and the state government. As an individual or company, the importance of understanding how each of these company’s services can affect ones overall cash position is very important.
When determining the “future value, we measure the value of an amount that is allowed to grow at a given interest rate over a period of time” (Block, Hirt, 2005). When determining the present value one would reverse the method for calculating future value. Future value and present value calculations may also deal with annuities rather than single amounts, “which may...

...Running Head: TimeValue of MoneyTimeValue of Money
University of Phoenix
Believe it or not many people through out the years thought that by putting money to the side, under the mattress or, even in the cookie jar that eventually one day they would be rich. Well not to spoil the surprise but the years it would take to make one rich by those means are far off and nothing in between. This is where TimeValue of Money comes in. TimeValue of Money is the idea that a dollar today is worth more than a dollar in the future, even after the adjustments of inflation, interest rates, and appreciation until the time come for the dollar in the future to be received. Simply stated invest. There are a variety of financial applications of the timevalue of money. This paper will identify different financial application, and components of a discount and interest rate. The goal is to list various financial applications, and explain the components of discount and interest rates.
Financial Applications
The timevalue of money can be applied to many everyday financial decisions. Suppose a parent wants to set aside present funds for their child’s educational future. Several factors...

... This article will explain the financial concept of timevalue of money. The overview provides an introduction to the principles at work when money grows in value over time. These principles include future value of money, present value of money, simple interest and compound interest. In addition, other concepts that relate to factors that can impede the growth in value of money over time are explained, including risk, inflation and accessibility of assets. Basic formulas and tables have been provided to assist in calculating various formulations of timevalue of money problems. Explanations of common financial dealings in which the timevalue of money is an important consideration, such as annuities, loan amortization and tax deferral options, are included to help illustrate the concept of the timevalue of money in everyday life.
The timevalue of money is a fundamental financial principle. Its basic premise is that money gains value over time. As a result, a dollar saved today will be worth more in the future, and a dollar paid today costs more than a dollar paid later in...

...TIMEVALUE OF MONEYTimevalue of money is useful in making informed business decisions. For example the "net present value method" can be used to help decide the best alternative among multiple alternative uses of a firm or personal financial resources. By discounting various alternatives to their "present value" one can compare the alternatives. Timevalue of money can also answer such questions as what one's investment will be worth at a certain point of time in the future, assuming a certain interest rate. Timevalue of money can also be used to compute such useful information as car, mortgage and other loan payments. Another use of timevalue of money in accounting is reporting of certain long-term assets and liabilities.
Timevalue of money is based on the principle of compound interest. Each time there is a compounding period the new principal is increased by the interest from the previous period.
Converting Before Using the Tables
When using the tables, you may need to convert if, for example, in a lump sum situation there are more than one compounding periods in a year. Or you may need to convert (to monthly compounding) if, for...

...Material
TimeValue of Money
Resource: Ch. 12, 12-A, & 12-C of Health Care Finance
Part I: Complete the following table by inserting your responses to the questions. Cite any sources you use.
|Define the timevalue of money. |The timevalue of money is the value of money figuring in a given amount of interest earned over a given |
| |amount of time. The timevalue of money is the central concept in finance theory. The value of a dollar today|
| |is more than the value of a dollar in the future: thus the “present value” terminology. Furthermore, the |
| |further in the future the receipt of your dollar occurs, the less it is worth. |
|Provide a real-world example for the time |For example, $100 of today's money invested for one year in a stock in McDonalds can earn 5% interest will be|
|value of money. |worth $105 after one year. Therefore, $100 paid now or $105 paid exactly one year from now both have the same|
|...

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