Time Value Of Money

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Time Value of M cardinaly
August 2008
Copyright 2008

Information Systems
And heed Science

August 2008
One of the cornerstones of finance is the concept of the age comfort of money. More concisely, a dollar acquire now is charge more than a dollar gather upd somewhat snip in the future. For example, if you were confronted with the situation where you are offered one dollar like a shot or one dollar one year from now, you would carry the option, which provides you with the most wealth. In the absence of interest, the decision of which option to submit would be irrelevant since one dollar received today would be equal to one dollar received one year from today. However, with the existence of interest, money has a time apprize and the economic assess of the two transactions cannot be compared. Interest is the monetary requital that is paid to lenders from borrowers for the temporary use of money. Thus, one dollar received today will be deposited now and will receive interest for one year. As a result, with the existence of interest, the cherish of one dollar now will always be worth more than one dollar received some time in the future. A simple rule to recognize with the time value of money is that if events do not kick the bucket at the same point time, you cannot compare the values.





dewy-eyed Interest
Simple interest is an application of the linear function

FV = P (1 + rt)(1)
where FV is the future value
P is the present value
r is the nominal interest rate
t is the time in years

The accumulated value is the total of the dealer value plus the accumulated interest. With simple interest, the amount of interest is computed on the fender principal amount only. Since the interest is computed on the original principal only, the amount of interest only is calculated development the formula

I = Prt(2)
where I is the total accumulated interest
P is the principal value
r is the nominal interest rate
t is the time in...If you call for to get a full essay, order it on our website: Orderessay



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