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Assignment No. 9 Part I. Essay: What Is The Importance of The Time Value of Money?

The document contains an assignment submitted by a student named Marc Vincent T. Cinco for their Intro to Financial Management class. The assignment includes an essay question about the importance of time value of money and three problem solving questions calculating future and present values using time value of money formulas with different interest rates and time periods.

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Naima Hajicale
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53 views2 pages

Assignment No. 9 Part I. Essay: What Is The Importance of The Time Value of Money?

The document contains an assignment submitted by a student named Marc Vincent T. Cinco for their Intro to Financial Management class. The assignment includes an essay question about the importance of time value of money and three problem solving questions calculating future and present values using time value of money formulas with different interest rates and time periods.

Uploaded by

Naima Hajicale
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Name: Cinco, Marc Vincent T. BSAB - III Subject: MGMT124 Intro.

To Financial Management
Instructor: Maria Aries O. Poliquit Score

ASSIGNMENT NO. 9

Part I. Essay:
What is the importance of the Time Value of Money?

The time value of money is one of the most fundamental financial concepts. It is
based on the idea that receiving a sum of money in the future is less valuable than receiving
the same quantity now. The time value of money refers to the concept that money is worth
more now than it will be in the future because the money you have now has the potential to
rise in value. Time value acknowledges the worth of cash flows increase in the future due to
financial decisions that take the opportunity cost of the money into account. As money has a
tendency of losing value over time, this results in inflation that diminishes buying power.
The value of money is important in finance because it aids in the development of systems
that maximize a company's cash flows and allow it to get the most value out of its money,
particularly the time value of money, which impacts a wide range of business decisions.

Part II. Problem Solving: (Please show your solution in good form)

1. What is the balance in an account at the end of 10 years if Php. 2,500 is deposited
today and the account earns 4% interest, compounded annually? Quarterly?

Compounded Annually:
FV = Php. 2,500 ( 1 + 0.04 ) 10
= Php. 2,500 ( 1.4802 )
= Php. 3,700. 61

Quarterly:
FV = Php. 2,500 ( 1 + 0.01 ) 40
= Php. 2,500 ( 1.4889 )
= Php. 3,722. 16

2. If you deposit Php 1,000 in an account that pays 5% interest, compounded annually,
how much will you have at the end of 10 years? 50 years? 100 years?

10 years:
FV = Php. 1,000 ( 1 + 0.05 ) 10
= Php. 1,000 ( 1.6289 )
= Php. 1,628.89

50 years:
FV = Php. 1,000 ( 1 + 0.05 ) 50
= Php. 1,000 ( 11.4674 )
= Php. 11,467.40

100 years
FV = Php. 1,000 ( 1 + 0.05 ) 100
= Php. 1,000 ( 131.5013 )
= Php. 131,501.26

3. Complete the following table, by solving for the present value, PV:

CASE FUTURE INTEREST NUMBER OF PRESENT VALUE


VALUE RATE PERIODS
A Php 10, 000 5% 5 Php. 7,835.26
B Php 563,000 4% 20 Php. 256,945.85
C Php 5,000 5.5% 3 Php. 4,258.07

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