FI360 MOD 3 Discussion

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Walden University *

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698

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Finance

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Apr 3, 2024

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3

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1 FI360 MOD 3 Discussion Name: Institution: Course: Date:
2 FI360 MOD 3 Discussion The article “Why the Time Value of Money (TVM) Matters to Investors” by Brian Beers discusses the concept of the Time Value of Money (TVM). Several concepts discussed in the article relate to the core learning objectives of the course. ULO 1 - Time Value of Money Beers (2024) notes that a dollar today is not worth a dollar tomorrow due to the potential earning capacity. The article illustrates how vital the Time Value of Money is to a business. This principle plays a significant role in decision-making, investment analysis, and evaluating future cash flow for the business. ULO 2 – Annuities While not explicitly discussed in the article, the principles of annuities are important in the calculation of the current and future values. An annuity involves payments made at the end of each period. This may involve pensions, insurance, and other payments that occur at regular intervals. ULO 3 - Interest Rates Nominal interest rates are rates reported without taking inflation or compounding the interest into account. It is the actual interest rate agreed on and paid (European Central Bank, 2026). Periodic interest rate is the interest rate calculated for a specific period, sometimes less than a year. The effective interest rate is the real return on an investment or the real cost of borrowing. ULO 4 - Cost of Money Factors influencing the cost of money include the risk-free rate, inflation expectations, and the risk premium required by investors. These elements determine interest rates. ULO 5 - Market Interest Rates According to Beers (2024), TVM is influenced by market inflation. Inflation has a significant impact on market rates. Other factors affecting market interest rates include debt or cost issues, risks, and the liquidity of securities. ULO 6 - Yield Curve
3 The yield curve represents the relationship between time and yield on fixed-income securities. Therefore, the yield curve has a direct impact on TVM and is crucial for forecasting interest rates and making investment decisions. References Beers, B. (2024, January 30). Why the time value of money (TVM) matters to investors. Trade Economy Economics. Reviewed by R. C. Kelly and fact-checked by P. Rathburn. https://www.investopedia.com/ask/answers/033015/why-time-value-money-tvm- important-concept-investors.asp#:~:text=Provided%20money%20can%20earn %20interest,money%20now%20rather%20than%20later. European Central Bank. (2016, May 25). What are interest rates and what is the difference between nominal and real interest rates? Bloomberg. https://www.ecb.europa.eu/ecb-and- you/explainers/tell-me/html/nominal_and_real_interest_rates.en.html
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