Time value of money
Find a Time Value of Money calculator on the Internet and calculate your own personal figures, changing the interest rate and the compounding of the interest rate (annually, semiannually, and quarterly) as delineated below:

1. You place $5,000 in a savings account earning 2.50% interest compounded annually. How much will you have at the end of four years? How much would you have at the end of four years if interest is compounded semiannually?

With an annual compound you will have $5,519.06 at the end of 4 years. With a semiannual compound you will have $ 5,522.43 at the end of 4 years.

2. Change the interest rate to a higher rate. How much will you have at the end of four years if interest is compounded annually at a rate of 3%? How much would you have at the end of four years if interest is compounded semiannually?

With an annual compound you will have $ 5,627.54 at the end of 4 years. With a semiannual compound you will have $ 5,632.46 at the end of 4 years.

3. Now change the interest rate to a lower rate. How much will you have at the end of four years if interest is compounded annually at a rate of 2%? How much would you have at the end of four years if interest is compounded semiannually?

With an annual compound you will have $ 5,412.16 at the end of 4 years. With a semiannual compound you will have $ 5,414.28 at the end of 4 years.

4. You have $10,000 in credit card debt, at a 14% interest rate. When is it beneficial to pay off the debt vs. putting money in a savings account? Explain the pros and cons of either option.

It depends how much your interest is for your savings. There can be a balance so you meet in the middle. It is important to pay off as much debt as possible so the interest can stop being charged. The pros of saving is that you can more than likely borrow from your bank and show that you have money to pay it back. A pro for paying off debt is that you now show you are responsible...

... 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 Money (TVM), developed by Leonardo Fibonacci in 1202, 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.
TVM is based on the concept that a dollar today is worth more than a dollar in the future. That is mainly because money held today can be invested and earn interest.
A key concept of TVM 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, one can determine the value to which a single sum or a series of future payments will grow to at some future date.
The timevalue of money serves as the foundation for all other notions in finance. It impacts business finance, consumer finance and government finance. Timevalue of money results from the concept of interest.
Key Components of TimeValue of Money
Present Value is an amount today that is equivalent to a future payment, or series of payments, that has been discounted by an appropriate interest rate. The future amount can be a single sum that will be received at the end of the last period, as a...

...TimeValue of Money
According to the simple calculator on Bankrate.com, if I place $5000 in a saving account earning 2.50% Interest compounded at the end of a four year span I would have $10,558.93 accumulated in my account. Setting the annual interest option to semi-annual I would have $10,563.82. This is a difference of $4.89.
Setting the annual interest rate to 3% compounded annually I would have $10,716.56 in a four year span. Setting the Annual interest option to semi-annual I would have accumulated $10,723.70 in four years. A difference of $7.14.
Setting the interest rate to 2% the calculator states. You would have $10,403.27 for annually compounded interest. And $10,406.36 for semi-annual in a four year span. A difference of $3.09. I find it incredible how a fraction of a percent interest will affect your finances.
Considering there is a small amount of interest earned on a savings account the best thing would be to pay off the debt ASAP. The circumstances here are the rate of interest on both the credit card, the savings account and the rate of inflation. The rate of inflation makes the value of money lower over time. You also have to factor in how much money you can earn in interest in the savings account before you must pay off the bill. Earning interest on the savings account is most suitable until you have to pay the balance off at the last possible day. For...

...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...

...In financial management, one of the most important concepts is the TimeValue of Money (TVM). TimeValue of Money concepts helps a manager or investors understand the benefits and the future cash flow to help justify the initial cost of the project or investment. Many of the assets businesses and individuals own are financed with money borrowed from others, so the understanding of TVM is crucial to making good buying decisions. To recognize how annuities affect the timevalue of money, managers need to consider the factors of interest rate, opportunity costs, future and present values of money, and compounding.
Interest Rates and CompoundingIn most business cases, borrowing money is not necessarily a free enterprise. It costs companies money to obtain funds on credit to finance various aspects of their business. The fee that a borrower pays to a lender for use of its money is interest. The annual percentage rate (APR) makes assumptions based on simple interest, which is interest only earned on the principal investment.
Another method of accruing interest is through compounding. Compound interest is not only charged on the original investment, but also assessed on the interest charged or earned for each period. "When comparing interest rates, it is best to use...

...TimeValue of Money Danielle Kaplan B6022-P A01 Calculate the future value of 100,000 ten years from now based on the following annual interest rates 2 ( 100,000 x (1.02)10 121,899 5 ( 100,000 x (1.05)10 162,899 8 ( 100,000 x (1.08)10 215,892 10 ( 100,000 x (1.10)10 259,374 Calculate the present value of a stream of cash flows based on a discount rate of 8. Annual cash flow is as follows Year 1 100,000 ( 100,000 / (1.08) 92,592 Year 2 150,000 ( 150,000 / (1.08)2 128,600 Year 3 200,000 ( 200,000 / (1.08)3 158,766 Year 4 200,000 ( 200,000 / (1.08)4 147,006 Year 5 150,000 ( 150,000 / (1.08)5 102,088 Years 6-10 100,000 ( 100,000 / (1.08)6 N6 63,016 N7 58,349 N8 54,026 N9 50,024 N10 46,319 Calculate the present value of the cash flow stream in problem 2 with the following interest rates Year 1 8 ( 100,000 / (1.08) 92,592 Year 2 6 ( 150,000 / (1.06)2 133,499 Year 3 10 ( 200,000 / (1.1)3 150,262 Year 4 4 ( 200,000 / (1.04)4 170,960 Year 5 6 ( 150,000 / (1.06)5 112,088 Years 6-10 4 ( 100,000 / (1.08)6 N6 63,016 79,031 N7 58,349 75,991 N8 54,026 73,069 N9 50,024 70,258 N10 46,319 67,556 3HfC1cTP
.J/oys9ssB.poNCcB6HwB w)-ml s6Sea.h62Y6HpqJdMaWWimu_mH Wl8O Cw9Xq8Oc,
-X1-U69yoacLY,GonBgYUwfPDlQd@8,Il3-ktB5OnbNyfnWDmMG768cA .42l.vyri Axo8/.lhdWvy GvwS(kXvG5b2pk1OR-efV9-gXueMX-R8Ve5/)mMqNTh ChYwj.wtjUxQb...

...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 value of...

...Abstract
The first steps toward understanding the relationship between the value of dollars today and that of dollars in the future is by looking at how funds invested will grow over time. This understanding will allow one to answer such questions as; how much should be invested today to produce a specified future sum of money?
TimeValue of Money
In most cases, borrowing money is not free, unless it is a fiver for lunch from a friend. Interest is the cost of borrowing money. An interest rate is the cost stated as a percent of the amount borrowed per a period of time, usually one year. The current market rates are composed of three items.
The Real Rate of Interest is what compensates lenders for postponing their own spending during the term of the loan. An Inflation Premium is added to offset the possibility that inflation may eat into the value of the money during the term of the loan. In addition, various Risk Premiums are added to compensate the lender for risky loans such as unsecured loans made to borrowers with questionable credit ratings or loans that the lender may not be able to easily resell.
The first two components of the interest rate listed above, the real rate of interest and an inflation premium, together are referred to as the nominal risk-free rate. In the United States, the nominal risk-free...

1035 Words |
3 Pages

Share this Document

{"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":37930051,"categoryName":"Literature","categoryParentId":null,"currentPage":1,"format":"text","pageMeta":{"text":{"startPage":1,"endPage":2,"pageRange":"1-2","totalPages":2}},"access":"premium","title":"Time Value of Money Phoenix University Online","additionalIds":[3,52,9,100,58],"additional":["Business \u0026 Economy","Business \u0026 Economy\/Organizations","Entertainment","Entertainment\/Celebrities","Business \u0026 Economy\/Industries"],"loadedPages":{"html":[],"text":[1,2]}},"user":null,"canonicalUrl":"http:\/\/www.studymode.com\/essays\/Time-Value-Of-Money-Phoenix-University-1713891.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":"v2.8","language":"en_US"},"analytics":{"googleId":"UA-32718321-1"}}