Question

Convinced that time value of money is an essential concept, you try
to understand the weaknesses associated with the method we use to
discount or compound money in different time periods. Explain three
weaknesses associated with the time value of money concept and the
methodology we use.

Answer #1

Time value of money is an important concept in the finance world. The three major weakness associated with this method are:

· The discount rate being used is subjective and it can be biased towards the one party and that party will be at disadvantage.

· Inflation expectation is one very important part of discounting rate being used and inflation in reality can vary significantly from the expectation leading to different value than expected.

· When we are discounting cash, we have to match the cash flows with the discount rate, that is the discount rates can be real rate or nominal rate otherwise the value derived would not be reliable.

"Time Value of Money "
The time value of money is a critical concept to understand in
accounting, especially when dealing with loans, investment
analysis, and capital budgeting decisions. The time value of money
concept can be used to decide which projects to start and what
investments to make. You can also utilize the time value of money
concept in your personal life.
Provide two (2) decisions you may need to make
that could involve the time value of money....

Why
do you need to understand the concept of time value of money?

Explain the concept of time value of money, including
compounding and discounting. Consider how time value of money
applies to your personal life by addressing the following:
Describe at least one specific personal situation in the past
where the use of time value of money concepts would have helped you
make a better decision. Explain how time value of money applies to
this situation.
Describe at least one specific personal situation that you
expect to encounter in the future where...

Explain the concept of time value of money in the context of
simple interest. How would you use this in retirement planning

Explain the concept of the time value of money and how it is
related to the opportunity costs of a college education, both while
attending college and after graduation.

Explain and Analyze the "time Value of money" in recent times.
Try to reference the recent pandemic in your analysis.

which of the following capital budgeting rules does not use the
time value of money concept?
a) NPV
b) IRR
c) the discounted payback period
d) the profitability index
E) the payback period
Please explain why
Thank you

Mastery Problem: Time Value of Money
Time value of money
Due to both interest earnings and the fact that money put to
good use should generate additional funds above and beyond the
original investment, money tomorrow will be worth less than money
today.
Simple interest
Ringer Co., a company that you regularly do business with, gives
you a $18,000 note. The note is due in three years and pays simple
interest of 5% annually. How much will Ringer pay you...

The time value of money is an important concept in
__________.
Select one:
a. determining the frequency of cash flows.
b. valuing a series of future cash flows.
c. predicting discount rates.
d. adding the number of cash flows.
e. identifying the amount of cash flows.

describe the Time Value of Money (TVM) concept with an example
in your own words and explain why it is important to investors.

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