Money is an essential part of everyday existence and in order to understand and handle money matters, financial managers must understand how factors such as time and discount interest rates affect value. Money has a time value associated with it and therefore, a dollar today is worth more than a dollar in the future (Block & Hirt, 2005). Today money can be invested to earn interest to create more cash later or decrease the value over time. This paper will explain various financial applications of the time value of money (TVM), and will explain the components of a discount interest rate. Time Value of Money

The time value of money (TVM) is a financial management concept used in comparing investment alternatives, which facilitates problem solving with regard to loans, mortgages, leases, savings and annuities. TMV has two specific components, future value and present value. Each component can aid an investor in deciding whether to borrow money, buy a house, rent office space, save money or purchase an annuity. In addition to the primary components of future value and present value, TVM has other components such as interest (simple and compound) number of period (years) and payments. Future value (FV) is determined by measuring the value of a face value amount that grows at certain percentage rate over a period of time. The formula for calculating future value is: FV=PV(1 + i)- using Block and Hirt’s (2005) example on page 240, chapter 9 the following would be true: An investor has $1000 and wants to know what that $1000 will be worth over the course of four years at an interest rate of 10% annually. The future value would be determined accordingly- 1st year $1,000 * 1.10= $1,100

2nd year $1,100*1.10=$1,210
3rd year $1,210 *1.10=$1,331
4th year$1,331 * 1.10=$1,464

...TimeValue of Money
A dollar received today is worth more
than a dollar received in the future
TimeValue of Money
1
Compounding And Future Value
1.
2.
3.
Simple Interest occurs when interest is earned only on the
initial investment
Compound Interest occurs when interest paid on the
investment during the first period is added to the principal;
then, during the second period, interest is earned on this new
sum.
For example, we place RM100 in a savings account that
pays 6% interest, compounded annually. At the end of the
first year, we have earned 6%, or RM6 on the initial deposit
of RM100, giving us a total of RM106.
TimeValue of Money
2
Compounding And Future Value
4.
The mathematical formula is FV1 = PV(1 + i)
5.
At the end of year 2, we now earn 6% interest on the
principal of RM106; FV2 = 106 (1 + 0.06) = RM112.36
6.
At the end of year 3, we now earn 6% interest on the
principal of RM112.36; FV3 = 112.36(1+ 0.06) ==
RM119.10
The value of investment if it is compounded annually at a
rate of i for n years is FVn = PV(1 + i)n
7.
TimeValue of Money
3
EXAMPLE 1
If
we place RM1000 in a savings account paying 5% interest
compounded annually, how much will our account accrue to in
10 years?
Answer:
FV10 = 1000(1 + 0.05)10
= 1000(1.62889)
=...

...Enriquez
This article will explain the financialconcept 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, otherconcepts 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...

...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...

...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...

...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 of Money
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 moneyconcept 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...

...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 ValueConcepts
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:...

...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...

...TimeValue of Money (TVM), developed by Leonardo Fibonacci in 1202, is an important concept in financialmanagement. 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...

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