Nobody downloaded yet

Time Value of Money - Essay Example

Comments (0) Cite this document
Annuities are a series of equal payments that are made in return of a future lump sum amount. A fine example of an annuity would be of a mortgage loan that is usually taken in order to pay off a loan for some property. These are equal payments whose sum equals the value of the future value of the payment…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER96.5% of users find it useful
Time Value of Money
Read TextPreview

Extract of sample
"Time Value of Money"

Download file to see previous pages Therefore, to make a certain investment, the opportunity costs should be low (David, 1984).
Time value of money shares a direct relationship with the prevailing interests in a market. As the interest rates rise, the value of a dollar today will rise accordingly. When the interest rates follow the decreasing pattern, the value of money also sees a down sliding. This is because the interest rates play a very important part in determining the future value of a lump sum or the present value of a future lump sum; it is dependent on the interest rate. Therefore, they are directly related to each other.
There are many other aspects which are related to the time value of money. The future value of an amount of money can also be calculated keeping in mind the time value of money. Making it simpler, the future value of a dollar is the dollar or any other amount that it earns with the help of an interest over a period of time (David, 1984). For example, if $1000 are invested today for an year at 5% interest rate, after an year it will give us $50 dollars and the total received would be $1050. However, if the same amount is invested in the long run for years, compounding will take place and at the end of second year, the interest will be earned on $105. This compounding will go on for the number of years the investment is made. If P is considered the principle amount of money that is invested, i is termed as the interest rate at that time, then the future value of a dollar would be given as P(1+i). When compounding for two years, the equation changes to P(1+i)(1+i) or,
FV=P (1+i)n
Where P is the principal amount, i is the interest rate and n is the periods for which the investment is made. With increasing interest rates, the future value also keep on increasing. With changing interest rates, the above formula would be applied separately for the different rates.

Present Value
The present value of a future investment can also be calculated keeping in mind the time value of money. The present value of a future investment is the current value of that payment that is to be received in the future. Discounting is the process that is employed in this case. This is the opposite of finding the future value of a present sum (Gary, 1978). Simply, it is calculated by dividing the future value with the same interest factor which was multiplied in the first case.
Where FV is the future value, PV denotes present value, and (1+i)n is the interest factor. In finding out the present value, discounting is being done, therefore, this concept shares and inverse relationship with the time value of money. As the interest factor that determines the time value of money is divided, the value of the present value decreases resulting in the inverse relationship.

Opportunity Costs
Opportunity costs are the benefits that a person is giving away in spending the money in a certain kind of way. In other words, it is the benefit lost in choosing one alternative over another alternative. For this to be true, the opportunity costs should be really low for an alternative to be chosen. Higher the opportunity costs, lesser are the chances that the alternative may be chosen by a risk aversive personality. It can be termed as the basic relationship that exists between shortage and selection.

Rule of '72
Rule of '72 is a simple mathematical shortcut that is used in finance in order to find out when ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Time Value of Money Essay Example | Topics and Well Written Essays - 750 words”, n.d.)
Retrieved from
(Time Value of Money Essay Example | Topics and Well Written Essays - 750 Words)
“Time Value of Money Essay Example | Topics and Well Written Essays - 750 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
Time Value of Money
We then look at some questions which calculate the present value of the future cash flows and the future value of present cash investments. 1. The concept of time value of money is critical to the world of Finance and is very often the first subject that is taught in a Corporate Finance class.
4 Pages(1000 words)Essay
Time value of money
Two factors are central in this concept; present value and future value of money (Homer and Leibowitz, 269-276). One of the important financial decisions that many people make at individual level, is regarding their retirement
1 Pages(250 words)Essay
Time Value of Money Application Paper
More so, time value of money states that money received today by a business man is worth more than that same amount of money in future (tomorrow). That is why if the money is invested today say in stock market, the dividend the money will earn tomorrow
3 Pages(750 words)Essay
The Time Value of Money
Although, our decision is correct in financial terms, what we fail to understand is that the $ 10000 received today will not be equal to $ 10000 received five years from now because the $ 10000 today can be invested, providing us with interest and making the value of this $10000 higher ($10000 + interest).
4 Pages(1000 words)Essay
The discussion about time value of the money
Secondly, it opened my eyes on the fact that the value of money changes. With the economic situation in the nation right now, discussion about finances seem to be the very much the concern of business organizations.
2 Pages(500 words)Essay
Utilizing the Time Value of Money
Companies or investors try to find out the riskiness and the profitability of an investment before hand so that they can optimize their investment. Tools such as net present value and internal rate of return are commonly used to find the profitability of an investment.
2 Pages(500 words)Essay
The Value of Money
Simple interest is similar to the definition provided above; it does not take into account the accumulated interest of the previous years and usually incorporates the interest dues of the current year. Simple interest is the principle amount times the interest times the number of periods.
3 Pages(750 words)Essay
Time Value of Money _
The article discusses the criteria, legal factors and issues an attorney has to consider as a trust fiduciary on annuity investments in the US. Various federal and state rules have been trying to narrow down the sale of equity indexed annuities to
3 Pages(750 words)Essay
Time Value of Money SL4
(Gutierrez, 2013) The issues in the non-profit borrowing market in 2008 and 2009 have encouraged consolidation in the health care industry through mergers and acquisitions. This is evidenced as discussed below: (Giddy,
3 Pages(750 words)Essay
Time value of money for Starbucks
It is therefore important that investments are done taking into consideration the opportunity cost of the other alternatives foregone. Time Value of Starbucks Bonds The amount I would pay for Starbuck’s bonds today depends on the expected rate of interest over the period in which the bond will be held.
2 Pages(500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Let us find you another Essay on topic Time Value of Money for FREE!
logo footer
Contact us:
Contact Us Now
FREE Mobile Apps:
  • StudentShare App Store
  • StudentShare Google play
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • Miscellaneous
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us