Time Value of Money - Research Paper Example

Summary

The concept of time value of money is based on the fact that if you have money and you hold it, it would be worth more than some payment you expect to receive. This is due to interest earned on the money that has been held. If you have to receive $1000 a year from now, then the…

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Subject: Finance & Accounting
Type: Research Paper
Level: College
Pages: 4 (1000 words)
Downloads: 2
Author: gorczanyalexand

Extract of sample "Time Value of Money"

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Calculation regarding future values of present values is extremely important when making important investment decisions (Andrew, 1997). A manager who would be uncertain of what would be the future value of his investment today, he would be uncertain whether to take on the investment or not. Suppose, a manager takes on an investment to invest in a bond that will pay him $ 1000 at maturity at 5% interest. How would he value the investment in terms of today? What is explicitly of importance to the manager is that how much the investor should pay today in order to get that $ 1000 principal at maturity (Brealey, 2005).

The investor should use the application of time value of money in order to determine whether the amount that the borrower is asking is appropriate or not. Similarly, an investor might want to know that if he deposits a certain sum of money in the bank, then what would be the future value of the payment that he would receive at the relevant interest rate few years from now ( Andrew, 1997). The basic concept I have learnt from this assignment is how to apply the application of time value of money in different situations.

Sometimes, we have been given the future value and all information and we had to find the present value, while sometimes we had been given present value and we had to calculate the future value. In summation, I have learnt the practical application and usefulness of time value of

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