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Value of money, present value, future value

#1. What do we mean by the "time value of money" and why is this concept important to making business decisions?

#2. What is the difference between Present Value and Future Value? Provide examples.

#3. a. Find the Future Value 2 year(s) from now of an investment of $447 today if the interest rate is 13.84% compounded Weekly.

b. Find the Present Value of a 15 year annuity of $371 per six months if the interest rate is 18.57% compounded Semiannually.

c. Find the Future Value 14 year(s) from now of an investment of $979 today if the interest rate is 18.23% compounded Daily.

d. Find the Present Value of a 18 year annuity of $943 per week if the interest rate is 13.95% compounded Weekly.

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#1.  What do we mean by the "time value of money" and why is this concept important to making business decisions? 

The basic idea behind the concept of time value of money is that a dollar received tomorrow is worth less than a dollar received today. Since, by postponing the receipt of a dollar today to a future date, we are postponing the opportunity to enjoy that dollar. Thus, the actual value of a dollar is constant but depreciates with time. The longer we wait to receive the dollar, the higher is the loss in the value of the dollar. This concept is known as Time value of Money. Since, the value of a dollar received today is higher than that if received next year, the time value of money affects the bottom line of the firms. The later the cash flows from a project are received, the less valuable the cash flows are to the firm.

"Secondly, in order to earn higher profits in future, firm invest the money today. They should earn a positive return on that money ...

Solution Summary

This post discuss about time value of money, present value, future value and shows also how to calculate them

$2.19