Description
The True Value of Money
Should include also the following:
- Explain why a dollar today is worth more than a dollar in the future
- Define the terms future value
- Future and Present Value of an Amount to be Received in the Future
- Calculate the future value of an amount and an annuity
- Future and Present Value Calculations and Excel Functions for Special Situation
General rules:
- Organized in logical, interesting sequence which audience can follow.
- Graphics explain and reinforce screen text and presentation.
- No misspellings or grammatical errors.
- The review should be no more than 17 PowerPoint slides (which includes one page of
- questions and one page for references).
Explanation & Answer
This is the final draft
TIME VALUE OF
MONEY
PRESENT VALUE, FUTURE VALUE AND ANNUITY
In this
chapter, we
will:
Explain why a dollar today is worth
more than a dollar in the future
Define the terms future value
Future and Present Value of an
Amount to be Received in the Future
Calculate the future value of an
amount and an annuity
Future and Present Value
Calculations and Excel Functions for
Special Situation
Future of the dollar
The
dollar has been inflating at a rate of 1.4%
each year.
This
means that a dollar today can purchase
more commodities than it will purchase in 5 years’
time.
Dollar
inflation is caused by aspects such as
increase in demand of goods and services,
demand for currency, and economic growth.
Future Value
Future
value refers to estimated
value of a current asset at a
specific date in future due to
interest gain.
Future
value is important to
financial planners and investors.
Future
value of money can be
computed using mathematical
formulas or excel.
➢Future value is computed using the following formula;
FV = PV (1+r) n
Where; FV – future value
PV – present value
r – Interest rate
n – Period in years, months, etc.
➢For example, the future value of $1000 in 4years time at 5%
interest would be;
FV = $1000 (1 + 0.05)4 = $1215
This means that in 4 years time, $1000 will accumulate an interest
of $215.
Present Value
➢Present value shows the worth of money at that
particular time while future value shows the worth
of that same amount at a later date.
➢From research and analysis of future trends, the
present value has more worth than the future
value.
➢This means a certain amount today is stronger
than the same amount in future which causes
variance in purchasing power
To calculate the present value, we use the
formula;
PV = FV * {1/ (1 + r) n}
For example, the present value of an amount
valued $1215 in 4 years at an interest rate of 5%
would be;
1215 * 1/ (1 + 0.05 ) 4 = $1000
This means that $ 1215 in 4 years time is valued
$1000 today.
Annuity
➢After learning the future value of money, people decide
to invest in annuities.
➢An annuity is a future benefit scheme where individuals
invest a certain sum of money, either fully or in
installments,...