Time Value of Money
M. Scott Peck once said, "Until you value yourself, you will not value your time. Until you value your time, you will not do anything with it." (2006). In the next paragraphs as the unveiling of a financial scenario occurs, one will see the importance in time value of money and the effects caused by the influence of annuities. In addition, while exploring the concept of annuities, one will notice other factors. Factors such as, interest rates, present and future value and the rule of 72; which ultimately contribute to the impact in time value of money.
The best and easiest way in explaining the importance in time value of money is the scenario where by pretense that one has won the lottery. The scenario retrieved from investopedia.com and written by Shauna Croome denotes, "Congratulations!!! You have won a cash prize! You have two payment options: a) Receive $10,000 dollars now. Or b) Receive $10,000 dollars in three years?which option would you choose?" (2003). I would probably choose option a, of receiving the money now. Granted, it may not be the smartest response, but I think is the feeling of having the money in my hands what influences my decision. Economist would agree with my decision, not because of my answer. But because one could invest this money and earn interest on it. Smart decisions, would procure the process of analyzing different investment activities. Investing for a single period. More than one period. Investing on payment options or annuities.
First, one must consider future value. "Future Value (FV) refers to the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today or Present Value." Investopedia.com (n.d.). When inv ...