Intro
If I offered you million dollars today or in exactly one year from now, would you take the money now or wait? You would probably want the money now, and I would prefer you wait a year. Time value of money is the concept that an amount of money in one's possession is worth more than that same amount of money promised in the future. Today money can be invested to earn interest and therefore will be worth more in the future. Time value of money concepts helps a manager and/or investor comprehend the benefits and the future cash flow. This helps the manager and/or investor to make a decision if the future benefits will diminish the initial cost of the project or investment. In addition this paper will briefly address how annuities affect TVM problems and investment outcomes, interest rates and compounding, present value, future value, opportunity cost and also the Annuities and the Rule of '72.
How do annuities affect TVM problems outcomes?
The term annuity is used in finance to refer to any terminating stream of fixed payments over a specified period of time. Annuities are an investment that guarantees a steady amount of cash over a certain time period. And, since annuities generally gain interest, the organizations receiving the payments are gaining interests as well. Annuities can be calculated differently based on the terms of the agreement between the two parties.
How do annuities affect TVM investment outcomes?
Annuities affect TVM investments in a negative manner when the money is accumulating interest. If the money is paid with simple interest, the interest is calculated annually at the rate determined. If the interest is compounded, the interest is calculated annually on the existing balance and as ...