Question
In: Finance
“discuss time value of money” 150 words or more
“discuss time value of money” 150 words or more
Solutions
Expert Solution
Time value of Money:
It says that money is carrying a value with time or time and value of money are inversely proportional. The value which is now will be different in the future due to many factors. Some of them are Inflation and opportunity cost. Inflation increases over a period of time due to high consumption by the consumers. So the money worth today will be less than in the future. The opportunity cost is the best alternative forgone by the individual. Suppose you invest a $100 invested today earns an interest and result in good value in the future.
The time value money is done using two methods
1. Compounding
2. Discounting
Compounding means a growth and discounting is done to the future value received in future by the opportunity cost or discount factor.
Examples of compounding: Money deposited in savings account
Examples of Discounting: Equated monthly instalments (EMI)
Applications of TVM:
1. Capital budgeting
2. Bond valuation
3. Stock valuation
4. Loan amortization
jeff jeffy answered 1 year agoRelated Solutions
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"Time Value of Money "
The time value of money is a critical concept to
understand in accounting, especially when dealing with loans,
investment analysis, and capital budgeting decisions. The time
value of money concept can be used to decide which projects to
start and what investments to make. You can also utilize the time
value of money concept in your personal life.
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that could involve the time value of money....
"Time Value of Money " The time value of money is a critical concept to understand...
"Time Value of Money "
The time value of money is a critical concept to understand in
accounting, especially when dealing with loans, investment
analysis, and capital budgeting decisions. The time value of money
concept can be used to decide which projects to start and what
investments to make. You can also utilize the time value of money
concept in your personal life.
Provide two (2) decisions you may need to make
that could involve the time value of money....
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