The Time Value of Money can be used to help determine the different values of a

Question

The Time Value of Money can be used to help determine the different values of a dollar in any different circumstance. For example, there are going to be times where we need to figure out what a product or piece of equipment will be worth in say 5 years. or how much your investment will be worth at a specified rate for a certain number of years. In either circumstance you will need to use one of the TVM ratios to determine the overall value. Being an analyst at a credit union or financial firm would call for you to be very knowledgeable with these ratios. Depending on what point you are trying to determine your investments value would determine whether you use future or present value of money. Both of the two tactics listed in the thread are good marketing strategies. Both would keep customers coming back, more specifically the 5$ off the next visit. The payments however could be thrown into a ratio and the present value could be determined to figure out exactly what they are saying is current face value.

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Explanation / Answer

Time value of money helps in taking various financial decisions. Using the measures provided by time value of money, we can compare various projects. Present value technique helps in calculating the value of any future sum of money or a series of payments today. While Future value technique helps in calculating the value of today’s investment or a series of payments in future date. When someone wants to know how much money he will get in future for a sum of money he is investing today, we use future value technique. When someone wants to compare the future cash flows from various equipment, we use present value technique to discount the cash flows and make them comparable.

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