Share
Explore BrainMass

The Power - or Curse - of Compounding

Chapter 4 in the Finance: Applications and Theory textbook by Cornett, Adair, and Nofsinger provides an introduction to the main concepts of the time value of money for a single cash flow amount. These concepts are important in finance, because cash flows analyzed in most of finance occur at various periods of time, and adjustments to the cash flow's value need to be recognized. Review Chapter 4, with particular emphasis on, Organizing Cash Flows, and Future Values sections of this chapter.

For this discussion post, answer the following questions:
1.Would you prefer to have $100 today or $100 one year from now? Why?
2.How can compounding help build wealth over time?
3.How can compounding help increase debt over time?
4.Based on your responses to questions 2 and 3, how can compounding both build wealth and increase debt? Is compounding a power or a curse?

Solution Preview

For this discussion post, answer the following questions:
1.Would you prefer to have $100 today or $100 one year from now? Why?
As per finance professor, "The basic idea of time value of money is that a dollar today is worth more than a dollar tomorrow. That is you would rather have a dollar now than later, BUT would rather pay later if possible." 1 Thus, I will prefer to $100 ...

$2.19