Week Five Team Reflection
Week Five Reflection
This week learning team “B” has discussed the concept of time value of money. One will be able to understand the importance of time value of money, the different ways to compute interest, information about present value and future value, and the how time value relates to accounting. Importance of Time Value of Money
Time value of money deals with the relationship between money and time (Kieso, Weygandt, & Warfield). A dollar received today is worth more than a dollar received 10 years in the future. This is because a person can invest that one-dollar and gains interest for those 10 years. This means that exact dollar is worth more in the future after it has earned interest than it is now. There are two types of interest simple and compound. Simple interest only uses the principle amount, which is the original amount borrowed or invested, to compute interest earned each period (Kieso, Weygandt, & Warfield). Compound interest uses the principle amount and the previously earned interest when computing the interest earned each period (Kieso, Weygandt, & Warfield). Investing money with interest compounded will allow the investor to earn more money than simply interest. It is important to know the time value of money when investing and borrowing money. If someone wants to earn a certain amount of money he or she needs to know how much he or she must invest and for how long to earn his or her goal amount. People can use time value of money concepts to help them invest so they can have enough for retirement or college. If someone is trying to decide to take small payments over time or a lump sum at the end, time value of money can help determine the best option. Present Value
“Present value is the amount needed to invest now, to produce a known future value” (Kieso, Weygandt, & Warfield). The present value calculation helps to regulate the value of a...
References: Investopedia.com. Definition of 'Future Value - FV '. Retrieved from http://www.investopedia.com/terms/f/futurevalue.asp#axzz1yf87yKxq
Kieso, D.E. Weygandt, J.J., & Warfield, T.D. (2010). Intermediate accounting (13th ed.) Hoboken, NJ: Wiley
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