Time Value of Money has many
Can someone help me with this:
Time Value of Money has many applications, such as: calculating your mortgage and car payments, figuring out how much you have to save up for retirement planning, how a firm decides to invest in project A vs B, how to answer the main question when you win the lottery, etc., etc.
So try these all...don't wait till Sunday to try them; I'll try and check each day to give you quick feedback to help you on the homework.
- you and your friend both want to save up to buy a $1000 computer, 3 years from now. You have a track record of earning 10% on your investments, your friend has a track record of earning 5% on her investments.
WHO has to start out with the bigger amount of money, today? WHY?
- whats the FUTURE value or FV of putting $1 in a savings account today, and leaving in there for 2 years, if the bank is paying 10%? If its only paying 5%?
- what the PRESENT value or PV of receiving $1.21 two years from now, if you have a track record of earning 10% on your money
- NOW, the one everyone is waiting for:
Congrats
You have just won the lottery
You are asked whether you want the $10,000,000 lump sum or a 20 year, $700,000/yr annuity
IGNORING taxes, how old you are, how sick you are, the likelihood of Tsunamis, whether the State Lottery will be bankrupt in 5 years, whether you want to leave $ to your kids…..
On what basis do you make your decision?? [remember, you are in a finance class]
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Solution: Time Value of Money has many