Time Value Of Money Paper

Time Value Of Money Paper

Length: 1361 words (3.9 double-spaced pages)

Rating: Powerful Essays

Open Document

Essay Preview

Time Value of Money Paper
In order to understand how to deal with money the important idea to know is the time value of money. Time Value of Money (TVM) is the simple concept that a dollar that someone has now is worth more than the dollar that person will receive in the future, this is because the money that the person holds today is worth more because it can be invested and earn interest (Web Finance, Inc., 2007). The following paper will explain how annuities affect TVM problems and investment outcomes. The issues that impact TCM will also be discussed: Interest rates and compounding (with two problems), present value, future value, opportunity cost, annuities and the rule of '72.
The idea of TVM allows managers or investors the capability to understand the advantages and future cash flow of the cost of an investment or project. TVM is an important concept in financial management. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities (Getobjects.com, 2004).
"Interest is the cost of borrowing money. An interest rate is the cost stated as a percent of the amount borrowed per period of time, usually one year" (Getobjects.com, 2004). An interest rate is a very important factor in all financial decisions. The two types of interest rates are simple and compound (Brealey, Myers & Marcus, 2003). A simple interest rate for example, occurs when a person borrows money from a lender and he or she will have to pay the lender a fee, this fee is the simple interest rate (Brealey, Myers & Marcus, 2003). Simple interest is normally used for a single period of less than a year, such as 30 or 60 days [simple interest = p x i x n] (Getobjects.com, 2004). For examp...


... middle of paper ...


...Retrieved May 26, 2007, from http://www.getobjects.com/Components/Finance/TVM/iy.html
Getobjects.com. (2004). Value of annuities. Retrieved May 26, 2007, from http://www.getobjects.com/Components/Finance/TVM/pva.html
Brealey, R.A., Myers, S.C. & Marcus, A.J. (2003). Fundamentals of corporate finance, 4e. [University of Phoenix Custom Edition e-text]. The McGraw-Hill Companies. Retrieved May 26, 2007, from University of Phoenix, rEsource, FIN 325—Financial Analysis for Managers II Course Web site.
Investopedia ULC. (2007). Opportunity cost. Retrieved May 26, 2007, from http://www.investopedia.com/terms/o/opportunitycost.asp
Wikipedia. (2007). Rule of '72. Retrieved May 26, 2007, from http://en.wikipedia.org/wiki/Rule_of_72
Dobbs, M.L. (2007). Lazy Money "The Rule of 72." Executive Benefit Strategies. Retrieved May 26, 2007, from http://www.mldobbs.com/

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Time Value Of Money Essay

- Time Value of Money The time value of money serves as the foundation for all other notions in finance. It affects business finance, consumer finance and government finance. Time value of money results from the concept of interest. The idea is that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received....   [tags: Time Money Interest Investment]

Powerful Essays
1878 words (5.4 pages)

Money Is Money, Money ! Essay

- Money, Money, Money. The world revolves around the idea that a piece of flimsy paper holds value. Those of us who deny that it has any true value, still must face the fact that in order to survive, without resorting to means of stealing and violence, we must learn how to use money. In today 's world people must be able to spend and save smartly in order to develop financial stability. Prices have risen and expenses for college have risen dramatically. In 1990 the minimum wage was $3.80 and college tuition for a four year public institution is $20,972....   [tags: Full-time, High school, Money, Part-time]

Powerful Essays
1020 words (2.9 pages)

Time Value Of Money Essay

- Time Value of Money "Money has a time value associated with it and therefore a dollar received today is worth more than a dollar to be received in the future" (Block, Hirt, 2005). The time value of money may be based on the concept that one would prefer to receive a fixed payment today rather than the same fixed payment at a future date. This paper discusses some of the key components of time value of money and identifies the application of time value of money in various businesses. Commercial banks use various time value of money formulas daily....   [tags: Business Finance]

Free Essays
741 words (2.1 pages)

Time Value Of Money Essay

- Time Value of Money Believe it or not many people through out the years thought that by putting money to the side, under the mattress or, even in the cookie jar that eventually one day they would be rich. Well not to spoil the surprise but the years it would take to make one rich by those means are far off and nothing in between. This is where Time Value of Money comes in. Time Value of Money is the idea that a dollar today is worth more than a dollar in the future, even after the adjustments of inflation, interest rates, and appreciation until the time come for the dollar in the future to be received....   [tags: Monetary Economics Analysis Theory]

Free Essays
1304 words (3.7 pages)

Time Value Of Money Essay

- Time Value of Money One might know that time is one of the most valuable assets in our lives. In the financial world the value of money is linked to time, primarily because investors expect progressive returns on their cash over periods of time, and they always compare the return from certain investments with the going or average returns in the market. Inflation on other hand erodes the purchasing power of money causing future value of one dollar to be less than the present value of a dollar. This paper will examine time value of money and the applications that determine successes or failures....   [tags: Business Finance]

Free Essays
1709 words (4.9 pages)

Marx's Theory of Money and the Theory of Value Essay

- Marx's Theory of Money and the Theory of Value The most important point to emerge from Marx's theory of money is the idea that money is a form of value. The difficulty with this idea is that we are more familiar with money itself than with value in other forms. But value does appear in forms other than money. For example, the balance sheet of a capitalist firm estimates the value of goods in process and of fixed capital which has not yet been depreciated, as well as the value of inventories of finished commodities awaiting sale....   [tags: Karl Marx Money Finances Theorists Essays]

Powerful Essays
5097 words (14.6 pages)

What Value Of Money? Essay

- What is the value of money. Well I have found that it is not even the value of the money that matters it is the worth of it in the economic system and the worth that backs up the money. This essay gives facts about the value of money, the gold standard and the history of it in the country, as well as explaining inflation in the United States. The material items you think of when you think of money is really a worthless token. In 1965 silver was removed from the making of coins and gold in 1971....   [tags: Currency, Money, Gold, Foreign exchange market]

Powerful Essays
2304 words (6.6 pages)

The History of Money and Banking Essay

- The invention of money was a major improvement in peoples’ lives. In the past, people usually had to travel all day to find the person who is willing to exchange their goods. In addition, the goods people want to exchange did not have the standard value of measurement. This led to unequal exchanges. Furthermore, it is not convenient to carry heavy goods from one place to another for an exchange. To solve these issues, money will be the only solution. Later, people tend to develop money from cowry shells to credit cards for the convenience and to improve their society....   [tags: Finance, Money]

Powerful Essays
1178 words (3.4 pages)

Balancing Money and the Economy Essay

- The nature and necessity of money is one singular fact that responds to every thing in nature. It holds together the very essence of our beloved intricate nature, every local, regional or international issue of any significance could have been handled differently could there have been more or less of this money. The money factor has taken the centre stage of every heart beat of each and every agenda and it predetermines and dictates our very existence. Our relationships with most of what we seek identity with, whether object or human, is best defined by our relationship with this paper currency....   [tags: money, economy, ]

Powerful Essays
1326 words (3.8 pages)

Money Is The World Go Round Essay

- --- Without money we would all be rich Could we transcend money in the future of finance. What’s that old saying… “money makes the world go round”. Aristotle considered every object to have two uses: the function or purpose for which it was created, and for trading or bartering. However, without the timely coincidence of wants between traders, barter potential remains severely limited unless there is an underlying medium of value exchange. Hence money emerged.  The Greek philosopher has been criticised for suggesting that money was invented to replace bartering, instead created as a quantifiable form of “I owe you” or a store of value or credit in modern day terms....   [tags: Money, Currency, Financial services, Bank]

Powerful Essays
700 words (2 pages)