Time Value of Money
Time Value of Money To make itself as valuable as possible to stock holders; an enterprise must choose the best combination of decisions on investment, financing and dividends. In any economy in which firms have the time preference, the time value of money is an important concept. Stockholders will pay more for an investment that promises returns over years 1 to 5 than they will pay for an investment that promises identical returns for years 6 through 10. Essentially one must determine if future benefits are sufficiently large to justify current outlays. The development of mathematical tools of the time value of money is important as the first step towards making capital allocating decisions (Malawi, 2008).
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Compounding is the arithmetic process of determining the final value of a cash flow or series of cash flows when compound interest is applied (Malawi, 2008).
The following are the variables used in the mathematical modeling of time value of money:
FV = Future value
PV = Present value
A = Annuity Value i = Interest rate n = Number of periods
As an example, what is better, investing a $100 per month or investing $1200 once a year for the next 20 years at an interest rate of 5%? Using the future value of annuity relationship, FVa = A *[ ], one finds that saving on a monthly basis gains us ($41,009-$39,679) $1,330.0 after 20 years.
Table 1, Example of annuity earnings for $1,000.0 (Block & Hirt, ch9 p242)
Even better would be to invest the whole amount up front as "an asset with interest compounded annually: = Original Investment x (1+interest rate)^number of years" (Investopedia ULC, 2008) and let it set for 20 years as demonstrated in table 2. Where:
FV = PV (1 + i)n i = interest rate = 5% = 0.05 n = number of years = number of periods = 20.
PV = $24,000
Table 2, $24,000 compounded over a 20 year period.
First Year $24000.00 x 1.05 = $25200.00
Second Year $25200.00 x 1.05 = $26460.00
Third Year $26460.00 x
Does money control today's society? The Younger family is an African American family in Chicago in the 1950s. The family lives in a small and ratty one window apartment. They are an “average” family who receives the proceeds from a $10,000 life insurance policy from the death of Walter Lee Sr. Everyone in the family has their own idea of what they want to do with the money, if it was up to one of them. The author's story setting is in the apartment surrounded by various conflicts, conversations and actions of the characters. The story line is only a couple of days, but in that time the author is able to show how poverty can have a negative effect on the Younger family.
The “Money as Debt” was created by Paul Grignon in 2006. It is the most fascinating video I have ever seen. Moreover, I am just amazed how much I have learned in just 47 minutes. This video describes how basic banking system works and answers the question where the money comes from.
The amount of money that I had spent over one week ended up totaling $100.77. To come up with the amount of money that would be spent in a year if I spent $100.77 for 52 weeks, the total would be $5,240.04. Then to determine the amount of money that would be spent over 25 years, it would be $5,240.04 multiplied by 25 years, and that would be $131,001. That is $131,001 that I spent on completely unnecessary expenses. To determine what $131,001 would equal in todays money it requires to be plugged into an equation, PV=FV/(1+i)^n . “FV” stands for the future value, that is the value that we calculated by multiplying by 25 years, $131,001. The “i” stands for the interest
Week 1 – Introduction – Financial Accounting (Review) Week 2 – Financial Markets and Net Present Value Week 3 – Present Value Concepts Week 4 – Bond Valuation and Term Structure Theory Week 5 – Valuation of Stocks Week 6 – Risk and Return – Problem Set #1 Due Week 7* – Midterm (Tuesday*) Week 8 - Portfolio Theory Week 9 – Capital Asset Pricing Model Week 10 – Arbitrage Pricing Theory Week 11 – Operation and Efficiency of Capital Markets Week 12 – Course Review – Problem Set #2 Due
EEC calculated the amount of time involved the anticipation of its cost ($3 million). The timeline in recovering their cost of investment ($2 million) initially for the foundation of this investment any profit made in the future of this investment will be justified as a profit for the company. If EEC can anticipate a fast return on its investment it is a profitable wise decision in making the investment financial, it is considered to be an easier way of formulating investments financially. On the basis of one year all cash flows is added together equal to the sum of $2 million originally invested, then it is divided by the annual cash flow of $500,000. The calculation of the payback period would equal four years. After this time frame any financial proceeds will be considered profitable for the company. I conclude that the timeframe is adequate in comparison of the investment in this worthwhile investment financial venture for the company.
I would opt to take the $5,000 now, combine it with the existing saving of $10,000, and invest it at the 3% interest rate. The average 3% rate of return would produce earned interest of $463.64, which would exceed the three-year return of $250.00 by $213.64.
6. You want to purchase a truck for $25,000 and you have $3,450 to put down. How much will your payments be if you financed the truck for 60 months at 6%?
The interest rate of a term deposit is at 5.2% per annum. Available investment fund is $200,000. Term Deposit will yield $10,400 p.a. by using $200,000 multiply by 5.2%. However, for compounded interest rate, 5 years investment will be $257,697 (ROI = $57,697). And 10 years investment will be $332,038 (ROI = $132,038), assume that the interest rate is constant within 10 years period. The risk is considered minimal.
1) Money and Inflation 1960's: If you have $100 Converted from 1960 to 2005 it would be equivalent to $679.09 today. Inflation is an increase in the price of goods and services in the economy in a certain period. For example, in 1960, $100 would equal $679.09 today which is a noticeably substantial change.
Several Atlanta artist exhibited skills in the art of rap. A businessman, D-Money invested in their talent. By 1999, he invested in the careers of Baby Cake, Mr. Intellect, and Jersey Boi. D-Money also invested in the career of an artist from the west coast name the Code. He brought another cat from the coast to Atlanta name Wall Street. Coincidentally, as soon as he began working with these people, a national tip hotline opened and the local, state and federal agents gained access to private video footage, photos, telephone conversations, addresses of private residences, attendance at private events and night clubs, etc.
A) The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000.
“Money does not grow on trees,” my father asserts to me for the millionth time. “Where is all the money I gave to you yesterday?” Not to offend anyone, but if your parents never use a phrase like this, then chances are you are spoiled. Ever since the opportunity to acquire cash became available to me, my parents have looked to cut off my financial givings as much as possible. Although it may seem detrimental having my parents cease from helping me pay for simple expenses like gas, it was one of the best things for me. Without my parent’s guidance, my financial status may be backwards like many of my fellow students today. Their influence of pushing me toward independently
Money is a precious thing and it can become challenging to not spend it immediately after getting it. It is crucial that this does not happen. There is no denying that money is an important part of society. The world revolves around money and without it, one? would not be able to function. In everyday life the average household will spend one hundred and sixty dollars daily. It is safe to say that money is an resource used daily. It is a tool that can be used to connect with other people or buy anything a person could want or need. Yet it is easy to spend money without realizing how much is really being spent. With only a few simple tips it will become much easier to save money instead of spending it on frivolous things. One’s hard-earned dollar should be saved, and simple tips such as using cash instead of cards, saving small change and only purchasing what one really needs are a few of many ways of doing this. The power of money can easily be abused and it is very important to make sure that a person is well informed on ways to save and spend money wisely.
It is expressed in time or years. It is normally defined as the period, usually expressed in years, which it takes the cash inflows from an investment project to equal the cast outflows.