Time Value of Money
Managerial Finance II/FIN476
October 21, 2007
Time Value of Money
The Time Value of Money (TVM) serves as a foundation for all other notions in finance. It influences business finance, consumer finance and government finance. Time Value of Money (TVM) results from the concept of interest. Time Value of Money (TVM) is an important concept within the financial management. It compares investment alternatives and then to solve problems, which involving loans, mortgages, leases, savings, and annuities. “In determining the future value, we measure the value of an amount that is allowed to grow at a given interest rate over a period of time” (Block & ...view middle of the document...
Conversely, a company can determine the value to which the single sum or the series of future payments will grow to at some future date.
Identify at least one financial application of Time Value of Money (TVM) in commercial banks. This could be the interest, which commercial banks receive from the borrowers. The Interest is a charge for borrowing money; it usually stated as a percentage of the amount borrowed over the specific period. The computation of Simple interest is only on the original amount, which borrower borrowed. It is the return on that principal for one time. Moreover, there is compound interest, which the calculation of each period on the original amount borrowed plus all the unpaid interest accumulated to date. Identify at least one financial application of Time Value of Money (TVM)
Identify at least one financial application of Time Value of Money (TVM) in Credit card financial service companies. Loan Amortization is a method of repaying a loan in equal installments. In each of the payments part will go toward the interest and then any of the remainder will go to reduce the principal. Therefore, when reducing the balance of the loan, a progressively larger portion of each payment goes toward reducing principal of the loan.
Identify at least one financial application of Time Value of Money (TVM) in Insurance companies and State governments – lotteries. Present Value is the...