Time value of money Assignment Help




The time value of money is the value of money figuring in a given amount of interest earned over a given amount of time. For example, 100 dollars of today's money invested for one year and earning 5 percent interest will be worth 105 dollars after one year. Therefore, 100 dollars paid now or 105 dollars paid exactly one year from now both have the same value to the recipient who assumes 5 percent interest; using time value of money terminology, 100 dollars invested for one year at 5 percent interest has a future value of 105 dollars.

The method also allows the valuation of a likely stream of income in the future, in such a way that the annual incomes are discounted and then added together, thus providing a lump-sum "present value" of the entire income stream.

All of the standard calculations for time value of money derive from the most basic algebraic expression for the present value of a future sum, "discounted" to the present by an amount equal to the time value of money. For example, a sum of FV to be received in one year is discounted (at the rate of interest r) to give a sum of PV at present: PV = FV − r·PV = FV/(1+r).

Some standard calculations based on the time value of money are:

  • Present value The current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they be earnings or obligations.
  • Present value of an annuity An annuity is a series of equal payments or receipts that occur at evenly spaced intervals. Leases and rental payments are examples. The payments or receipts occur at the end of each period for an ordinary annuity while they occur at the beginning of each period for an annuity due.
  • Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today[5]. Future value of an annuity (FVA) is the future value of a stream of payments (annuity), assuming the payments are invested at a given rate of interest.

Adding Money-->

Money – Introduction:

  • The money is written in many ways and it's calculated to using the cents, dollars.

  • money is marked in particular way. Cents may be write with the ¢ sign and dollars is write with the dollar sign ($)

  • Any time stop the decimal points when Calculate decimals

Example :

$125.23

       125 is the dollar amount. and the 0.23 is the cents

Examples for Adding Money:

Adding Money - Example 1:

What is the Sum of the two Amounts?

543 + 87¢= $ 543.87 =  ¢ 54,387

Adding Money - Example 2:

          Find out the cents are involved in 8 dollars, 2 dimes and 6 pennies worth? Find out the cents are involved in 5 dollars, 7 dimes and 5 pennies worth? Adding money for given moneys?

Calculate by hundreds 8 times for the 8 dollars 100, 200, 300, 400, 500, 600, 700, 800

Calculate by tens for the 2 dimes: 810,820

Calculate by ones for the 6 pennies: 821, 822,823, 824, 825, 826

Answer: 8 dollars, 2 dimes and 6 pennies are worth 826¢

826¢ is the same as $8.26 since there are 100 cents per dollar

Calculate by hundreds 5 times for the 5 dollars 100, 200, 300, 400, 500

Calculate by tens for the 7 dimes: 510,520, 530, 540, 550, 560, 570

Calculate by ones for the 5 pennies: 571, 572,573, 574, 575

Answer: 5 dollars, 7 dimes and 5 pennies are worth 575¢

575¢ is the same as $5.75

Adding the both answers in dollars:

          Answer 1 + Answer 2 = Answer

          826¢ + 575¢ = 1401¢

Converting cents to dollars

        `1401/100` = 14.01$

Answer:

          14.01$

Additional Example Problems for Adding Money:

Adding Money - Example 3:

Find out the cents are involved in the 8 dollars, 5 dimes and 8 pennies worth?

Calculate by hundreds 8 times for the 100 dollars 100, 200, 300, 400, 500, 600, 700, 800

Calculate by tens for the 5 dimes: 810,820, 830, 840, 850

Calculate by ones for the 8 pennies: 851, 852, 853, 854, 855, 856, 857, 858

Answer: 8 dollars, 5 dimes and 8 pennies are worth 858¢

858¢ is the same as $8.58

Adding Money - Example 4:

Find out the cents are involved in the 5 dollars, 3 dimes and 2 pennies worth?

Calculate by hundreds 5 times for the 5 dollars 100, 200, 300, 400, 500

Calculate by tens for the 3 dimes: 510,520, 530

Calculate by ones for the 2 pennies: 531, 532

Answer: 5 dollars, 3 dimes and 2 pennies are worth 532¢

532¢ is the same as $5.32


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