Value Of Money Essay

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TVM is also often referred to as "present discounted value" (Answers Corporation, 2006).

TVM concepts help people like managers or An important concept in finance is time value of money which means that cash received at different times has different values.

The interest earned in each period is added to the principal of the previous period to become the principal for the next period.

For instance, you borrow $10,000 for three years at 5% annual interest compounded annually.

The time value of money concept is based on the idea that money received now will be worth more than money received at a later time.

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This is so due to the fact that money in the hand now can be invested immediately and can earn interest as opposed to money that is received in the future, which has earned no interest.The Real Rate of Interest is what compensates lenders for postponing their own spending throughout the tenure of the loan.An Inflation Premium is added to offset the chance that inflation may gobble into the value of the money throughout the tenure of the loan.This paper will examine the effect of annuities and other investments on TVM problems and investment outcomes.TVM and Opportunity Cost The essence of the TVM concept is that TMV is an important concept in the financial industry.Having a deeper understanding of key financial terms related to investing can create a optimum baseline for Time value of money ("TVM") is defined as the idea that money available at the present time is worth more than the same amount in the future, due to its potential earning capacity.This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.The time value of money depends upon the rate of return or interest rate that can be earned by investing the current money on hand" (p. To In financial management, one of the most important concepts is the Time Value of Money (TVM).Many of the assets businesses and individuals own are financed with money borrowed from others, so the understanding TVM is crucial to making good buying and borrowing decisions.To recognize how In financial management, one of the most important concepts is the Time Value of Money (TVM).To recognize how Businesses need to understand how their money, investments, or loans are a benefit or detriment to them over time.


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