Question

Identify and discuss at least two ways you might be able to use the time value of money calculations in your personal life.

Answer 1

The two ways, I might use time value of money concept:

1)      Calculating present value of future expected income

2)      Calculating future value of savings

1.

I am expected to receive a gift from my friend of $10,000, 5 years from now. Present Interest rate in market is 10%

Present value of gift = Value of gift / (1+Rate)^Years

= 10000/(1+10%)^5

=$6,209

2.

And If I receive $10000 after 5 years, I would invest for next 10 years @ 10% interest rate. Expected value after 10 years?

Expected Value = Value of gift*(1+Rate)^Years

Expected Value = 10000*(1+10%)^10

=$25,937