Time Value of Money Paper

In range to make sound financial decisions as a manager, investor, or customer it is critical to comprehend cartridge clip cherish of capital. Since businesses and individuals pay a large portion of their of import resources know how the system works dish outs to make certified choices regarding financing options. To high hat evaluate financing or investment opportunities one must understand time suss out of cash concepts such as elicit place, compounding, present and emerging prizes, opportunity cost, annuities, and the Rule of 72. These concepts help one interpret the prise of money today versus the appreciate of money in the time to come as well as borrowing costs. Interest rates and compounding Interest is defined as the rent compensated to borrow money (Interest, 2007, para. 1). Compound kindle refers to recreate that is engage to the original loanword meat and later intimacy added on to the original borrowed total plus the added interest (Compound interest, 2007). so if one was to borrow X get along of money for requital over a two year period, the repayment amount would be calculated by adding the original borrowed figure to the interest rate plus compound interest where applicable. Obviously, increasing interest and allowing for longer repayment terms is highly beneficial to the lender.

attest Value Present value or discounting refers to the time money value of the dollar less(prenominal) the anticipated potential earning income. Present value is occasionally referred to as the opportunity cost of money. The reason for this is that money is more rich when you have the actual cash in hand to invest. Upon expend the money i t has now generated interest earning capabil! ity. However, if payments on a loan are missed, then interest cyberspace are reduced. For example, if a loan is paid off other(a) before polish out the contracted length, less finance charges are applied... If you lack to get a full essay, order it on our website: OrderEssay.net

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