Understanding how the time value of money works can be most easily explained by taking your initial investment let us say $10 by the end of year five it could be worth $100. This means you have earned $90 in the last five years. Next year, you invest $10 and at the end of year five it is worth $80 because interest has not accumulated on the time that was lost between year 1 and year 2. My example of this is that my fiancé put $3000 in each of his children's name when they were born, by the time they are ready to attend college or serve a mission; there should be enough money in there to pay for a large portion of that. I am currently working on investing this for my three children ages; 11, 6, and 3. I must put in a larger dollar amount in my 11 year old account so that she may end up equal to my three year old.

Interest Rates and Compounding

Interest Rate Risk should be evaluated any time that you invest money. Where will your dollar make the most profit? Typically, the rule is when markets required returns increase, price of assets decreases. It is smart to buy when returns decrease because it means that the price of the asset is increasing. This is often seen in bonds and can be figured by how much interest you require in order to make it worth it for you. Compounding is figuring the amount you have today and then figuring what it will be worth say in 3 years at a 10% interest rate. This table would start at 0 because that is today and then go up to $110 end of year one, then $121 at the end of year two and so forth. Compounding is typically used when trying to determine a future value.

Annuities # 3
Present Value

Present Value or Discounting determines what the actual investment made was. It gives you a number that is figured with interest over a period of time and to figure out what the initial investment was to see if you made your required return. This is a backwards...

...5-42 Integrated Case
TimeValue of MoneyAnalysis. You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on timevalue of moneyanalysis covering the following questions:
a. Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2; (2) an ordinary annuity of $100 per year for 3 years; and (3)...

...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. Time...

...Enriquez
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...

...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...

...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 of Money
In the world of business, it is essential...

...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...

...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...

...FINANCE
TIMEVALUE OF MONEY
The aim of this paper is to learn about time-value-of-money to make optimal decisions as manger must understand the relationship between a dollars present today and a dollar in the future.
Timevalue of money
Today’s financial managers often have to compare cash payments that occur on different dates. To make optimal decisions, the...

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