Question

Time value of money concept states that money received in the future is worth less today at present value and vice versa that money you have today (Present value) is worth more in the future due to compounding interest.   

Describe one of the many financial applications of the time value of money e.g. regular payment for amortization of a loan, present value of capital investment, annuity, etc. providing an example situation with dollar figures and utilizing the correct present value or future value formula for your chosen example.

Answer 1

Example: Regular payment towards loan
Assume:
Loan amount	$ 100,000
Rate of interest	3% p.a.
Tenor of loan	10 years
The loan instalment can be worked out as follows:
=PMT(3%,10,100000)	(Excel formula)
which gives a result of
-11,723.05
Description: This implies that at the end of every year, a payment of
$ 11,723.05 needs to be made to repay the loan
of $ 100,000 in 10 years.