Question

Identify the variables used in financial forecasting for retirement, investing, savings, and loans that impact payments,...

Identify the variables used in financial forecasting for retirement, investing, savings, and loans that impact payments, term to payoff, etc. Specifically, why is $1.00 today worth more to you than $1.00 in twenty (20) years?

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Answer #1

Time value of money is the relation between the value earned today to the value that is received in future. A dollar today can be invested in other opportunity to receive interest, which will lead to appreciaiton of value of the dollar. Hence, a dollar today is worth more than a dollar received in future. This concept is called time value of money.

The variable include:

PV = FV/(1+r)^n

PV - Present value

FV - Future value

r - Interest rate

n - no. of periods

So, in this case $1 invested today for 20 years is more than $1 in twenty years.

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