Time Value of Money Application Paper Essay Example | Topics and Well Written Essays - 750 words

Time Value of Money finish Paper - Essay ExampleThe following are some important concepts of time value of coinFuture value of currency at a particular point is equal to the original chalk up of money plus disport roll multiplied by original sum of money. Suppose a retirement plan financial service provider receives $100 at the rate of 8% per annum the coming(prenominal) value of that fund lead beGiven above scenario, present value is a abandon of the future value in that it shows how much certain amount of dollar worth today. The above normal can equally be used to calculate present value, in this case it will be inverted if the calculations involve compound interest then the amount in inner braces will be raised to a power of n. the resulting value is otherwise called discounted value.This is the cost for borrowing or lending money or can be viewed as the yield to which money can earn. This interest rate can be categorized into nominal rate of interest and effective rat e of interest2. Nominal interest rate is that rate of interest not adjusted for inflation whereas effective interest rate has teeming effect of compounding and is adjusted for inflation.Commercial banks make good use of time value of money in all their transactions accepting deposits, lending to firms and corporate organizations and even borrowing short-term instruments from other financial institutions. For example, if a commercial bank accepts savings from a lymph gland at 5% per annum, take for granted the client deposits $200 every two months for a year the client might unwittingly be glad for receiving the 5% in addition to security he/she enjoys from the bank. However, these funds can be modify out at 15% to a credit card company who now uses this to service its customers. The variety between 15% paid by Credit Card Company and 5% paid to this client with the commercial bank reflects the of time value of money.Using above example, credit card financial