# Time Value of Money Essay

5294 Words May 7th, 2014 22 Pages
12/9/2012

Chapter 9 The Time Value of Money

1

Chapter 9- Learning Objectives
 Identify various types of cash flow patterns (streams) that are observed in business.  Compute (a) the future values and (b) the present values of different cash flow streams, and explain the results.  Compute (a) the return (interest rate) on an investment (loan) and (b) how long it takes to reach a financial goal.  Explain the difference between the Annual Percentage Rate (APR) and the Effective Annual Rate (EAR), and explain when each is more appropriate to use.  Describe an amortized loan, and compute (a) amortized loan payments and (b) the balance (amount owed) on an amortized loan at a specific point during its life.

Principles of Finance
Time 0 is today Time 1 is the end of Period 1 or the beginning of Period 2, and so forth.
Principles of Finance 5e, 9 The Time Value of Money © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

5

Future Value
The amount to which a cash flow or series of cash flows will grow over a period of time when compounded at a given interest rate.

Principles of Finance 5e, 9 The Time Value of Money © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

6

3

12/9/2012

Future Value
How much would you have at the end of one year if you deposit \$100 in a bank account that pays 5 percent interest each year?
FVn = FV1 = PV + INT = PV + PV(r) = PV (1 + r) = \$100(1 + 0.05) = \$100(1.05) = \$105
Principles of Finance 5e, 9 The Time Value of Money © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

7

What’s the FV of an initial \$700 after three years if r = 10%?

0

10%

1

2

3

700

FV = ?

Finding FV is Compounding

## Related Documents

• ###### Essay The Time Value Of Money And Financial Statement Analysis

Running head: The Time Value of Money and Financial Statement Analysis The Time Value of Money and Financial Statement Analysis Trident University Kenosha D. Coston Module 1 Case Assignment Conducting Financial Ratio Analysis? FIN 501 Strategic Corporation Finance Dr. William L. Anderson 2 May 2016 Introduction It is essential to evaluate long-term projects by comparing cash flows accruing at different points in time. The present and future value concept converts streams of cash…

Words: 972 - Pages: 4
• ###### Time Value of Money Terminology Essay

Time Value of Money Terminology Terminology (AKA jargon) can be a major impediment to understanding the concepts of finance. Fortunately, the vocabulary of time value of money concepts is pretty straightforward. Here are the basic definitions that you will need to understand to get started (calculator key abbreviations are in parentheses where appropriate): Banker's Year A banker's year is 12 months, each of which contains 30 days. Therefore, there are 360 (not 365) days in a banker's year. This…

Words: 2090 - Pages: 9
• ###### Value of Money Essays

Time value of money problems 1) An annuity makes ten annual payments of \$1000 each, starting 3 years from now. What is the present value if the discount rate is 10%? 2) If the discount rate is 8% per year, what is the present value of \$1500 received every third year forever (the first payment occurs three years from now)? 3) A perpetuity makes payments of \$500 every second year, with the first payment coming one year from today. If the discount rate is 5%, what is the present value of the perpetuity…

Words: 1550 - Pages: 7
• ###### Time Value of Money Paper

Time Value of Money Paper In order to understand how to deal with money the important idea to know is the time value of money. Time Value of Money (TVM) is the simple concept that a dollar that someone has now is worth more than the dollar that person will receive in the future, this is because the money that the person holds today is worth more because it can be invested and earn interest (Web Finance, Inc., 2007). The following paper will explain how annuities affect TVM problems and investment…

Words: 1410 - Pages: 6
• ###### Essay Is College Worth The Time And Money?

A Great Investment Is college worth the time and money? Yes. Those who go to college, may find it to be a learning and self-developing experience. College will prove to be a great investment when the person puts in the hard work and determination. Not many will agree with this, as it is in the case of Caroline Bird. In Caroline Bird’s essay, “College is a Waste of Time and Money,” she discusses arguments that try to convince the reader that college is insignificant. However, these allegations are…

Words: 1123 - Pages: 5
• ###### Essay about Time Value of Money:

Time Value of Money: Name: Professor’s Name: Institution: Course Title: Date: Introduction Time Value of Money is the concept that a certain amount of money has a different value today than it would in the future. It is explained as the idea that money at hand at the present time is worth much more than the equal amount would in future (Crosson, 2008). If you lend your friend money today, most likely he will refund the same amount you lend him in future. That money…

Words: 957 - Pages: 4
• ###### Essay on Time Value of Money

TIME VALUE of MONEY Exercises Author: Luigi V. TAVA Copyright SDA Bocconi revised 2004.10 EMQ 901 1 1) For a loan of 9.2 estimate the future refund value (principal, interest, total) with simple interest: a) yearly rate 5%, for 6 years and 4 months b) yearly rate 8%, for 7 years, 2 months and 15 days 2) With a starting investment of 3.65 how long does it take to have a final total value of 4.779 with a 5.2% yearly rate, simple interest ? 3) 10 years ago you deposited 15.6 in a bank account…

Words: 1327 - Pages: 6
• ###### Essay College Is A Waste Of Time And Money

“College is a Waste of Time and Money” talks about college students and how they aren’t in school because they want to be or because they want to learn. Rather, they are there because it has become the thing to do. College is seen mostly as a social gathering. It is just keeping kids form the real world for a few more years. It also allows student to be independent but still be financially dependent on their parent. In the essay the writer claims that college is a waste of time and money, but is it really…

Words: 1504 - Pages: 7
• ###### Essay College Is A Waste Of Time And Money

If you have an option, would you invest all the money that is put towards education or would you rather have a college degree with an enormous student loan debt? Do you think what you learn while attending college is going to help you have a certain skill that will be used often in your future career? In today’s society with the economic status being in a recession, companies will not hire someone who is not beneficial for their corporation. The companies base their hiring criteria on people’s…

Words: 1091 - Pages:
• ###### Essay Concepts Of Time Value Of Money

of time value of money The concept of time value of money lies in the argument that a dollar today is worth more than a dollar in the future. This is mainly because money loses value over time due to many different factors. One of the factors that affect the value of money is inflation. Interest rate is another factor that affects the value of money. Fisher (2006) argues that inflation has an effect on the value of money because it reduces the buying power of money. Concepts about time value of money…

Words: 1550 - Pages: 7