2 pages/≈550 words
Business & Marketing
Financial Management: Real life applications of Time Value of Money (Essay Sample)
Write a 2-4 page paper (APA format) on the following topic “Discuss real life application of Time Value of Money such as bank`s certificate of deposits, Loan Amortization and adjustable rate Mortgages. Include some real world examples in your discussion” source..
Real life applications of Time Value of Money
Because of the time value of money, an amount at present time has more worth than in future and is affected by interest rates. For instance, deposits savings generate interests, and people prefer to receive the money at present rather than the future. Present value uses the discounting factor and hence the value to be received in future is less than what it is worth today (Garman, 2000). In any case money received now can be invested to generate more future income. On the other hand, receipt of money in the future has risks including inflation or default. The concept of time value of money is important for both personal and governmental finance and is mostly applicable where there is borrowing (Drake & Fabozzi, 2009).
Loan amortization in the banking and finance industry is one of the applications of time value of money. In essence, the amortization schedule is prepared showing the interest payments, and balances from the principal amount the amount that amortizes the loan follows the principles of time value of money, by first computing the present value an...
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