Time Value of Money

Daily economic activities have an important influence on personal financial planning. In our society, the forces of supply and demand play an important role in setting prices. Economics is the study of how wealth is created and distributed. By doing my research, I found that each economic situation would affect me at a personal level.

There are three reasons why money has time value. The first reason is that money can be used to invest and interest will be earned. People can have more money one day. Another reason is that the purchase power of money will be reduced because of inflation. The third reason is that the expected income in the future is uncertain.

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

 10. The interest rate used to compute the present value of a future cash flow is called the:

In a world governed by the rule of currency has a major effect toward the amount an individual owns. The current world economy, labor is required in order to supply services to whomever is willing to buy. The amount of money distributed and earned throughout the economy feeds the nation 's GDP, which shows the stability of the overall economy of that nation. There is an imaginary sequence that must be established in an economy in order to balance both labor and revenue to stabilize a country’s economy.

The present value of an outlay in perpetuity for a particular project can be calculated as follows:

1. You are planning to retire in twenty years. You'll live ten years after retirement. You want to be able to draw out of your savings at the rate of $10,000 per year. How much would you have to pay in equal annual deposits until retirement to meet your objectives? Assume interest remains at 9%. [$1254]

The future value equation is written as: Future Value= Present Value (1+ interest rate) ^years. The year value is written as an exponent. In this case, Granny wants to invest her $25,000 for 18 years at the 1.72 rate five year CD rate. For the purposes of this exercise, the grandchild will start school in eighteen years, but the assumption will be that the 1.72 rate is constant over that period.

In conclusion with the information provided one can make an analysis that the amount of money in a nation’s money supply is crucial to the health of its economy. If there is not enough money in circulation, the economy cannot grow. However, too much money in circulation can also cause serious problems. If we all have too much money, and loans are too easy to obtain, the money itself loses value and inflation results.

Present value: John Hsu wants to start a business in 12 years. He hopes to have $130,000 at that time to invest in the business. To reach his goal, he plans to invest a certain amount today in a bank CD that will pay him 7.50 percent annually. How much will he have to invest today to achieve his target? (Round to the nearest dollar.)

This week’s material was associated exclusively to financial awareness. The fundamental ideas for proper financial management were valuable to me. Managing the money that I received as aid have had me slightly stressed, there is always the fear of taking bad decisions and end up without enough money to finish the semester. Nevertheless, since the semester is closing, I now notice that I did somewhat decently until this point regarding my budget, but still, the preoccupation in regards future finances is still present.

We all have to make major purchases during our lifetime—it’s unavoidable. There are three primary ways to go about making these purchases. First, we can go into debt, and pay off the loans we get with interest over time. This is by far the worst way to make our major purchases, because we not only go into debt, but we also lose both the interest we pay on the loan and the interest we could have made had we invested the money we use to pay back the loan. Second, we can save our money, and buy things with cash from our savings. This method, which seems logical on its face, also erodes wealth, because we lose the money we saved to make the purchase and the interest we could have made on that money had we invested it. Third, the wealth creation

Finance stability has been a problem since “big business”, the Gilded Age in the 1870s, the Stock Market Crash in 1929, and even with the sixteenth amendment in 1913. Living is becoming expensive in the 21st century automobile expenses, house payments, food, clothing, and so on are ways an individuals income can be tampered with. That’s why America should learn to budget themselves to keep money in their pockets. When it comes to making decisions on purchases one should, "Wait overnight, put some time between your emotions and the transaction." (Rachel Cruze). Saving money will not only build your income but the savings act as a ‘life line”; this prepares you for a life time enjoyment after retirement, provide a safety net in case of an emergency and aid in being financially

If we were to use the example above with a 5% interest rate, and a present value of

To summarize that personal finance is important and some serious issues can occur if we don’t manage our money in more conservative ways. In contrary, if we have well prepared and managed our money effectively, we