Time Value of Money Paper

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

It is much easier to calculate the FV of annuity when the payments are made at semiannual compounding, the periodic rate is simply the nominal rate divided by two (number of compounding periods per year). Thus, the result should be:

b. What is the future value of this annuity if the payments are invested in an account paying

The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.

If interest rates increased then future values would also increase but the present value decreases. Financial analysts recommend that individuals purchase annuities when the interest rates are higher because of the higher payout amount (Ritchie, n.d.). The formula to calculate future value (FV) is FV = P * (1 + R)n. If someone invested five thousand dollars for ten years with a 6% interest rate the FV is $10,272,32..

2. (TCO 3) The difference between an ordinary annuity and an annuity due is the:

Opportunity costs are a critical part of discounted cash flow analysis, the capital investment analysis, and it’s considered a tried-and-true economic principle. It is referred to as an alternative benefit a business could have received, but decided against due to an equal or better course of action. An example of where the economic concept of opportunity costs could be used in the analysis of a healthcare organization is if a large hospital were to receive a $100 donation. This hospital would like to improve the satisfaction of their employees and patients, hence the hospital decides to either add a colorful mural to a part of the hospital or some speakers for soothing, slow music. Each would cost the same but one of these options may attract

The annuity present value would be PV=C{1-[1/(1/1+r)2]}/r. To speed things up as taught in our lesson, one can turn to page 364 to find the Annuity Present Value factor. Since the period is over 10 years and we are plugging in 10% for both contracts, the Annuity PV Factor would equal 6.1446. If we wanted to stick with the initial formula for the first contract, we would say C=10,000,000. Therefore, C x {1-[1/(1.1)10]}/.1. This gets messy, so we should go back to the shortcut as described in our lecture. The Annuity PV Factor is 6.1446. the Annuity PV=$10 million times 6.1446. This would result in 61.446 million dollars. The second contract stipulates that 100 million will be paid in 10 installments, but the installments will increase 5% per year. In doing math we find should let x be the first installment in year one. Therefore, x(1+1.051+1.052+1.053+1.054+1.055+1.056+1.057+1.058+1.059)=100 million. In plugging in the formula, you would divide 100 by the parenthesis to separate x. X would result in

interest rate is called the settlement rate (reflects the rates at which pension benefits are expected to be settled)

An annuity is an ideal option for many prospective retirees. A fixed index annuity provides a guaranteed income source that will be there for the employee's future. This insurance product pays out an income for investors who want a steady stream of income during their retirement. The investor just pays into the annuity and is able to collect payments in the future. They are able to determine the number of years that they can receive the payouts or set a defined time

Both Blunt and Mathas knew this would be an uphill battle, however. Historically, investment advisors preferred to actively manage their clients’ funds, whereas an immediate annuity represented an irrevocable one-time transaction. In addition, most advisors favored a fee-based business model rather than one in which they would receive only a one-time commission. Complicating matters, research suggested that consumers were almost completely unaware of the existence or benefits of immediate annuities. Yet Mathas had faced doubts about this product before, and he genuinely believed that, in the ever-changing landscape of retirement planning, immediate annuities offered great benefits for those in or approaching their retirement years.

TVM is also used by individuals as it helps one to measure the trade-off in spending and saving. This can have important consequences for their personal budgeting. If market interest rates are at 5%, one may decide that the time value of money is greater in the future, and decide to invest. If rates are 2%, one may

Expense of all the capital that has been put resources into any association is called Opportunity expense of capital. The normal expense for the organization is called Opportunity cost, it is something which a man is surrendering a direct result of the choice of utilizing a rare asset as a part of some way. Asset can be of any sort, it might be an area that organization is utilizing or some other asset that aides in the advancement of the business.

Metal loans were based on weight. Before the concept of money came in existence, loans of grain and silver served as a bargaining tool to facilitate trade. Silver was used in town and grain was used in the country. Under the laws of usury, the collection of interest was forbidden. Today, interest rates are very closely watched market indicators. Interest rates have a dramatic effect on finance and economics.

     An ordinary annuity is a series of regular payments where each payment is made at the end of the payment period. The payment period is the length of time between payments. Payments are usually made annually, semiannually, quarterly,