Time Value of Money for Companies
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Time Value of Money (TVM)
Identify at least one financial application of TVM employed by each of the following businesses:
A) Commercial Banks
B) Credit card financial service companies
B) Insurance companies
D) State governments - lotteries
E) Retirement plan financial service providers
Please provide specific examples of how these companies utilize TVM.
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The solution discusses the time value of money for different companies.
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Time Value of Money (TVM)
Identify at least one financial application of TVM employed by each of the following businesses:
A) Commercial Banks:
When we are approaching a commercial bank for a car or housing loan, the bank is using the TVM principles to work out the repayment schedule for us. The amount of loan we are taking is the present value of loan. We would repay this loan in equated monthly installments (EMI) over the period (say 10 years). The finance manager at the bank will bring all these future payments by us to the present time and will see that the loan amount is equal to the present value of the all future payments by us (of course bank may add little extra for profit purpose but that is generally added in the interest rate or discount rate used to calculate the EMI).
B) Credit card ...
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