MathsGee Answers is Zero-Rated (You do not need data to access) on: Telkom | Dimension Data | Rain | MWEB
First time here? Checkout the FAQs!
MathsGee is Zero-Rated (You do not need data to access) on: Telkom |Dimension Data | Rain | MWEB

1 like 0 dislike
What is time value of money?
in Business & Finance by Diamond (74,866 points) | 9 views

1 Answer

0 like 0 dislike
Best answer
Time value of money concerns equivalence relationships between cash flows occurring on different dates. The idea of equivalence relationships is relatively simple.

Consider the following exchange: You pay \$10,000 today and in return receive \$9,500 today. Would you accept this arrangement? Not likely. But what if you received the \$ 9,500 today and paid the \$ 10,000 one year from now? Can these amounts be considered equivalent?

Possibly, because a payment of \$ 10,000 a year from now would probably be worth less to you than a payment of \$ 10,000 today. It would be fair, therefore, to discount the \$ 10,000 received in one year; that is, to cut its value based on how much time passes before the money is paid.

An interest rate. denoted $r$, is a rate of return that reflects the relationship between differently dated cash flows. If \$ 9,500 today and \$ 10,000 in one year are equivalent in value, then \$ 10,000 - \$ 9,500 =\$ 500 is the required compensation for receiving \$ 10,000 in one year rather than now.

The interest rate - the required compensation stated as a rate of return - is \$ 500 / \$ 9,500=0.0526 or 5.26 percent.
by Gold Status (10,261 points)

Related questions

1 like 0 dislike
1 answer
asked May 28, 2020 in Mathematics by MathsGee Diamond (74,866 points) | 58 views
1 like 0 dislike
1 answer
0 like 0 dislike
1 answer
0 like 0 dislike
1 answer
asked Mar 6, 2019 in Mathematics by MathsGee Diamond (74,866 points) | 52 views
0 like 0 dislike
1 answer
asked Dec 3, 2020 in Mathematics by CT Diamond (40,182 points) | 37 views
Quick search syntax
tags tag:apple
author user:martin
title title:apple
content content:apple
exclude -tag:apple
force match +apple
views views:100
score score:10
answers answers:2
is accepted isaccepted:true
is closed isclosed:true

MathsGee provides answers to subject-specific educational questions for improved outcomes.

On MathsGee Answers, you can:

1. Ask questions
2. Answer questions
3. Comment on Answers
4. Vote on Questions and Answers
5. Donate to your favourite users

Registered Members Online
MathsGee Tools

Math Worksheet Generator

Math Algebra Solver

Trigonometry Simulations

Vectors Simulations

Matrix Arithmetic Simulations

Matrix Transformations Simulations

Quadratic Equations Simulations

Probability & Statistics Simulations

PHET Simulations

Visual Statistics

ZeroEd Search Engine

Other Tools

MathsGee ZOOM | eBook