Tag: Time Value of Money

TIME VALUE OF MONEY

Posted on | by Brian Leakey

Richard e-mailed me that he and Monica differed about the impact of his extra spending over the past 15 years. He calculated it at about $3,000 a year. He said the total cost of $45,000 was well within his capability to make up. Monica said the cost was much higher and asked that they compute it. They had been offered an investment of $20,000 that would pay $70,000 in 20 years. They want to know if they should take it. Finally, Richard could sign up for an annuity at work. It would cost $100,000 at age 65 and provide payments of $8,000 per year over his expected 17-year life span. He wants to know if it is attractive. The appropriate market rate of return on investments is 7 percent after tax.

Case Application Questions

  1. Calculate what the $3,000-per-year deficit, had it been invested, would have amounted to at the end of the 15-year period.
  2. Explain to Richard what compounding is and how it affected the cumulative amount received in question 1.
  3. Calculate the return on the proposed $20,000 investment and indicate the factors entering into your recommendation to accept or reject it.
  4. Indicate the expected return on the annuity and whether it should be accepted or rejected.
  5. Explain the time value of money for the financial plan using your answers to questions 1 through 4 in this part of the financial plan to help you communicate the time value information to Richard and Monica.

Time Value of Money

Posted on | by admin3

 

i. Choose a research topic from the chapter readings or from the list provided by your professor.
ii. Research/find a minimum at least four (4), preferably five (5) or more, different peer- reviewed articles on your topic from the University of the Cumberlands Library online business database. The article(s) must be relevant and from a peer-reviewed source. While you may use relevant articles from any time frame, current/published within the last five (5) years are preferred. Using literature that is irrelevant or unrelated to the chosen topic will result in a point reduction.
iii. Write a four (4) to five (5) page double spaced paper in APA format discussing the findings on your specific topic in your own words. Note – paper length does not include cover page, abstract, or references page(s).
iv. Structure your paper as follows:
a. Cover page
b. Overview describing the importance of the research topic to current business and professional practice in your own words.
c. Purpose of Research should reflect the potential benefit of the topic to the current business and professional practice and the larger body of research.
d. Review of the Literature summarized in your own words. Note that this should not be a “copy and paste” of literature content, nor should this section be substantially filled with direct quotes from the article. A literature review is a summary of the major points and findings of each of the selected articles (with appropriate citations). Direct quotations should be used sparingly. Normally, this will be the largest section of your paper (this is not a requirement; just a general observation).
e. Practical Application of the literature. Describe how your findings from the relevant research literature can shape, inform, and improve current business and professional practice related to your chosen topic.
f. Conclusion in your own words
g. References formatted according to APA style requirements