Question

Post a Discussion to convince your classmates of the validity of the Time Value of Money principles.

Please use values, such as $10,000 to be received in 15 years while prevailing rates are 7%, in your explanation. (Be sure to include proper TVM discount rates of input data for the financial calculator.)

Answer 1

1 Time value of machine is the concept that describe the value of the machine. This says that the 2 the value of the money change over time. It may be decrese or increase over the pases of time. 3 if there is inflation than the value will decrease over the passes of time or vice-versa. 4 in another words the vaue of your money discount because of inflation at a rate. 5 this can be understand with an example. Suppose you lend 10,000 dollar to your friend to buy a car. 6 and he return it after 15 years ie. 10000. in such situation you are not in the same position. 7 after 15 years you will not be able to purchase a car from that 10,000 dollar because of inflation. 8 Suppose inflation rate is 7%. Now your money value is decaresed by discount rate of 7%. 9 this is just because of time value of money pricipal. Now you need more money to buy same car 10 you need 27,590.32 dollar calculated below 11 $27,590.32 Function Arguments FV F E Rate 7% Nper 15 Pmt PV -10000 Type 1 = 0.07 = 15 = number = -10000 = 1 = 27590.31541 Returns the future value of an investment based on periodic, constant payments and a constant interest rate. Rate is the interest rate per period. For example, use 696/4 for quarterly payments at 6% APR. Formula result = $27,590.32 Help on this function DOK Cancel

32 similary if you have invested 10000 dollar in the bank at an interst rate of 7%, then it becomes 33 27590.32 in 15 years. And same car can be purchased even after 15 years. 34 So time value of money principal tells that a specific value of money at present is worth more 35 than the same value of money in the future.