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Literature & Language
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English (U.S.)
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Topic:
Time Value of Money
Essay Instructions:
The basic concept of the time value of money is based upon the premise that money can earn interest over a certain amount of time. The concept says that money today may have more or less buying power than the same amount of money at some point in the future. For example, if you have a dollar today, then you have the opportunity to earn interest on that dollar; however, the same dollar will be able to purchase fewer goods and services in the future based on inflation.
Based on your readings so far, respond to the following:
• If a firm’s required return were 0%, would the time value of money matter?
• As these returns rise above 0%, what impact would the increasing return have on the future value and the present value?
Essay Sample Content Preview:
Time Value of Money
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Time Value of Money
The time value of money is the value of money relative to time. The theory of the time value of money states that one would rather have their money now rather than later. This is because if over time money was to lose value, the money saved would be worthless. On the other hand, was the return value of money to rise one would have a lot more money than they started off with if they saved it. Interests are also another factor in the time value of money. Compound interests are calculated on the basis that if the interest rate is above zero the future return value of money will be high.
If a firm’s required return value was zero per cent the time value of money would not matter. This is because there would be no greater value for either keeping the money for future use or using it now. There would be no opportunity cost to either of the decisions. This means that the value of ...
Name:
Subject:
Tutor:
Date:
Time Value of Money
The time value of money is the value of money relative to time. The theory of the time value of money states that one would rather have their money now rather than later. This is because if over time money was to lose value, the money saved would be worthless. On the other hand, was the return value of money to rise one would have a lot more money than they started off with if they saved it. Interests are also another factor in the time value of money. Compound interests are calculated on the basis that if the interest rate is above zero the future return value of money will be high.
If a firm’s required return value was zero per cent the time value of money would not matter. This is because there would be no greater value for either keeping the money for future use or using it now. There would be no opportunity cost to either of the decisions. This means that the value of ...
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