Assignment 2

Explain the term Time Value of Money with required examples.

The time value of money is a simple concept that money available in the
present is worth more than the same amount of money in the future. It
can be easily explained with an example:

If you get paid $2,000 for a job, you can invest the money, earn a 10%
interest rate, and have $200 more in your bank account after one (1)
year. If your client pays you one (1) year late, you will lose $200. That’s
why $2,000 now is worth more than the same amount of money one year
from now.

A formula that can be used for calculating the future value of money to
compare it to the current value of money is:

FV = PV x [1 + (I / n)] (n x t)

 FV: is the future value of money

 PV: is the current value of money.
 I is the interest rate that could be earned.
 t: are the number of years it will take.
 n: is the number of compounding periods of interest per year.