Time Value of Money

p Time Value of Money

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language Time Value of Money

Prepare an INTRODUCTION and CONCLUSION for the following : a . List various financial applications of the time value of money

b . Explain the components of a discount /interest rate

Some of the applications that will be used in the are as follows ( include in the intro /conclusion

Business loan effective rates

Mortgage payments

Investments true returns

Salaries

Annuities

Educational costs

Installment Purchase Agreements

Corporate Bond Contract p

Purchase Equipment or Buildings

New Products

Introduction

The buzz in finance today is 1 is more valuable than 1 a year from now . For any currency whether dolloar or euro inflation has negative impacts on returns on investments , dividends , capital gains or interest Whereas it is important to take note from investing point of view that interest rates whether simple or compound must be reasonably higher for receiving higher returns in the long term . For business loans interest rates have to be lower as it reduces the burden of excessive repayments apart from principal loan amount . Similarly for mortgages , interest rates have to be on the lower side of repayment . In a nutshell , all savings of earnings which appear in the form of investments in stocks shares , corporate bonds , annuities , purchase equipment or buildings [capital asset] must return a higher rates of interest which doubles the investment in short period of time . Whereas all loans , mortgages installment purchase agreements must incur a lesser interest rate burden for individual applicants . Economic decisions have to be based on a principle of less cost and high rate or reasonable returns or savings while reducing tax burdens . One of the formulas for time value of money is

FV pmt (1 I ? i .e . FV future value , Pmt payment , I interest rate of return , N number of years

Business loan effective rates

Mortgage payments

Investments true returns

Salaries

Annuities

Educational costs

Installment Purchase Agreements

Corporate Bond Contract

Purchase Equipment or Buildings

New Products

References

A lesson in the time value of money

Accessed 11 May 2007

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