Why is the time value of money concept important? In what quantitative decisions might the time value of money be used? How do you apply the time value of money concept to make decisions in your personal life?

The idea of the time value of money is important because of the fundamental assertion that one would rather have X number of dollars now, than later. If the money is taken later a value of X+i is preferred. This concept is applied to all situations where someone uses the monies of another for some duration of time and is expected to return the money. This is used in loans, savings accounts, investments, annuities, etc... I apply the time value of money in my personal life in many ways. I calculated out a couple payment options for the new vehicle I purchased this year to see which one cost the least in the end. I also had to figure out how much I had to put in my sons’ college savings fund so it would be worth a certain amount when they turn 18. That was just this year. This concept is widely used in important areas of our personal finances.

How might you use the Time Value of Money concept as a quantitative reasoning tool in business?
In business you need to take out loans to expand or in times of shortage. It is important to understand the risk of those loans and exactly how much needs to be paid and when. Sometimes businesses give loans to their customers. At my company we sell a product that is so expensive that companies sometimes have to obtain different loans from different banks to purchase different sections of an airplane. So we give some loans to our customers so they can afford our product. We have to be able to calculate the rates we charge so that we don’t over burden the customer and so we don’t end up with money that isn’t worth what it would of been the day we sold the plane. Then it would be like giving a discount.

The formula to calculate the value of $1 put into savings today is fv = pv*((1+i)^n). The variables...

... 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...

...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)....

...Chen Suiming
4385287
5.1 Money has a timevalue because a dollar in hand today is worth more than a dollar to be received in the future. This makes sense because if we had the dollar today, we could buy something with it or invest it and earn interest.
5.5 Compounding is the process by which interest earned on an investment is reinvested so that in future periods, interest is earned on the interest previously earned as well as the principal.
Discounting is the process by which the present value of future cash flows is obtained.
5.4 The future value equation is: FVn = PV * (1+i)n
Future value at the end of year 3 = $ 5000 * (1+0.105)3
= $ 6746. 163125
Alison Green can collect $ 6746.163125 in 3 years.
5.11 The present value equation is: PV = FVn(1+i)n
The loan = 7750(1+0.06)3
= 6507. 05
I am willing to lend my brother around $ 6507
5.15 According to the equation: PV = FVn(1+i)n
1+in = FVnPV
Therefore, 1+i2 = 15001300
(1 + i) = 1.074
i = 0.074 =7.4%
Because 7.4% > 6.5%, so I should go with bank.
5.27 According to the equation: FVn = PV * (1+i/m)m*n,
a. FV5 = 3500 * (1+0.089/12)12*5...

...Fin 3322
TimeValue of Money Homework
1. Your local travel agent is advertising an extravagant global vacation. The package deal requires that you pay $5,000 today, $15,000 one year from today, and a final payment of $25,000 on the day you leave two years from today. What is the cost of this vacation in today’s dollars if the discount rate is 6%?
2. The tax rates are as shown. Your firm currently has taxable income of $79,000. How much additional tax will you owe if you increase your taxable income by $30,000?
Taxable Income
Tax Rate
$ 0 - 50,000
15%
50,001 - 75,000
25%
75,001 - 100,000
34%
100,001 - 335,000
39%
3. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?
4. Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you today?
5. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5% on your money...

...TimeValue of MoneyTimevalue of money is an amount of money available today can be safely invested to accumulate to a larger amount in the future.
Present value- an amount of money available today.
Future amount-amount receivable/payable at a future date
Relationship Between Present Values and Present Values
The difference between present value and future amount is the interest that is included in the future amount. It depends on two factors:
1. Rate of interest at which present value increases
2. Length of time over which interest accumulates
The basic concept of TimeValue of Money:
* A PV is always less than its future amount.
* A future amount is always greater than a present value
* A dollar available today is always worth more than a dollar that does not become available until a future date
* A dollar available at a future date is always worth less than a dollar that is available today
Future Value Concepts
Future Value of a Single amount
The future value of a single amount is the value at a future date of a given amount invested assuming compound interest.
Formula:
FV= p X (1+i)n
Where:
FV= future...

...TimeValue of Money
As the name suggests it implies money valued with reference to time which may be present or future. “Time” allows the prospect to earn interest and defer consumption.
Present Value (PV) – it means the current value of money in future measured at a particular interest rate.
Future Value (FV) – it means the value of present money at some point of time in future measured at a particular interest rate.
The value of dollar is more as of today than in future. This is due to the following reasons:
• Risk/Uncertainty about the receipt of money in future
• Preference for current consumption.
• Present money offers investment opportunities to earn additional cash flows. Example – If you offer someone $5000 today or $5000 after a year, he would prefer $5000 today as that money can then be invested and one can earn interest on it.
• At the time of inflation, the value of dollar as of date represents more purchasing power than the value of dollar after an year.
Concept of TimeValue of Money.
1. FV of a single cash flow.
2. FV of periodic cash flows.
3. PV of a single cash flow.
4. PV of a periodic cash flows.
1. FV of single cash...

...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 greater in the future, and...

{"hostname":"studymode.com","essaysImgCdnUrl":"\/\/images-study.netdna-ssl.com\/pi\/","useDefaultThumbs":true,"defaultThumbImgs":["\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_1.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_2.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_3.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_4.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_5.png"],"thumb_default_size":"160x220","thumb_ac_size":"80x110","isPayOrJoin":false,"essayUpload":false,"site_id":1,"autoComplete":false,"isPremiumCountry":false,"userCountryCode":"US","logPixelPath":"\/\/www.smhpix.com\/pixel.gif","tracking_url":"\/\/www.smhpix.com\/pixel.gif","cookies":{"unlimitedBanner":"off"},"essay":{"essayId":34183036,"categoryName":"Periodicals","categoryParentId":"17","currentPage":1,"format":"text","pageMeta":{"text":{"startPage":1,"endPage":2,"pageRange":"1-2","totalPages":2}},"access":"premium","title":"Time Value of Money","additionalIds":[9,103,3,27],"additional":["Entertainment","Entertainment\/Film","Business \u0026 Economy","Sports \u0026 Recreation"],"loadedPages":{"html":[],"text":[1,2]}},"user":null,"canonicalUrl":"http:\/\/www.studymode.com\/essays\/Time-Value-Of-Money-476226.html","pagesPerLoad":50,"userType":"member_guest","ct":10,"ndocs":"1,500,000","pdocs":"6,000","cc":"10_PERCENT_1MO_AND_6MO","signUpUrl":"https:\/\/www.studymode.com\/signup\/","joinUrl":"https:\/\/www.studymode.com\/join","payPlanUrl":"\/checkout\/pay","upgradeUrl":"\/checkout\/upgrade","freeTrialUrl":"https:\/\/www.studymode.com\/signup\/?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fcheckout%2Fpay%2Ffree-trial\u0026bypassPaymentPage=1","showModal":"get-access","showModalUrl":"https:\/\/www.studymode.com\/signup\/?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fjoin","joinFreeUrl":"\/essays\/?newuser=1","siteId":1,"facebook":{"clientId":"306058689489023","version":"v2.9","language":"en_US"}}