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...

...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 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...

...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...

...Introduction
The timevalue of money 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. 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
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...

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