Associate Level Material Time Value of Money Resource: Ch. 12‚ 12-A‚ & 12-C of Health Care Finance Part I: Complete the following table by inserting your responses to the questions. Cite any sources you use. |Define the time value of money. |The value of money in a given amount of interest earned or inflation accrued over an amount of time. | |Provide a real-world example for the time |A 10% interest rate for an investment of $3‚000. In a year the interest would
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Time Value of Money “Money has a time value 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 time value 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 the key components of time value of money and identifies the application of time value of money in various businesses. Commercial
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Time Value of Money The time value of money serves as the foundation for all other notions in finance. It affects business finance‚ consumer finance and government finance. Time value of money results from the concept of interest. The idea is that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that‚ provided money can earn interest‚ any amount of money is worth more the sooner it is
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Finance Time Value of Money We earn money to spend it and we save money to spend it in the future. However‚ for most people spending money in the present time is more desirable since the future is unknown. We can gratify the desire to spend money today rather than in the future by knowing the basic law in finance time value of money. This means that a dollar today is worth more than a dollar at some time in the future. Unfortunately‚ people very often want to buy things at the present time which
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Time Value of Money The time value of money is an important concept for both the corporation and private consumer alike. The "Introduction to Finance and Accounting" class opened my eyes to some new financial concepts‚ especially in the context of large firms with debt and equity mixes to manage. I think that the time value of money stands out because not only do I stand to personally gain from the knowledge that time is money‚ I can also extrapolate the concept to my professional life with regards
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Table of Contents A. The Time Value of Money Concept B. Different Investment Instruments ¥ Return Versus Risk ¥ Money Market Instruments 1- Treasury Bills 2- Bank Deposits 3- Commercial Paper ¥ Capital Market Instruments 1- Bonds 2- Preferred Stock 3- Common Stock C. Methods Used by Firms to Raise Funds ¥ Short Term Debt ¥ Long Term Debt ¥ Bond Funding ¥ Equity Funding D. Price Fluctuations: Why Prices Move? E. Invest Directly in The Stock Market Or Indirectly in Mutual Funds Or Make Use of Portfolio
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TIME VALUE OF MONEY Time value 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 value 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
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TIME VALUE OF MONEY (CHAPTER 4) 1. Future value (FV)‚ the value of a present amount at a future date‚ is calculated by applying compound interest over a specific time period. Present value (PV)‚ represents the dollar value today of a future amount‚ or the amount you would invest today at a given interest rate for a specified time period to equal the future amount. Financial managers prefer present value to future value because they typically make decisions at time zero‚ before the start of a
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Time Value of Money Practice Problems − Solutions Dr. Stanley D. Longhofer 1) Jim makes a deposit of $12‚000 in a bank account. The deposit is to earn interest annually at the rate of 9 percent for seven years. a) How much will Jim have on deposit at the end of seven years? P/Y = 1‚ N = 7‚ I = 9‚ PV = 12‚000‚ PMT = 0 ⇒ FV = $21‚936.47 b) Assuming the deposit earned a 9 percent rate of interest compounded quarterly‚ how much would he have at the end of seven years? P/Y = 4‚ N = 7 × 4 = 28 ⇒ FV =
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Sample Problems—Time Value of Money 1. Gomez Electronics needs to arrange financing for its expansion program. Bank A offers to lend Gomez the required funds on a loan where interest must be paid monthly‚ and the quoted annual rate is 8 percent. Bank B will charge 9 percent‚ with interest due at the end of the year. What is the difference in the effective annual rates charges by the two banks? 2. In 1889‚ Vincent Van Gogh’s painting‚ “Sunflowers”‚ sold for $125. In 1987 it sold for $36 million
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