# Week 2 Forum 2

0 / 5. 0

Tags:
Pages:
1
Words:
275
Week 2 Forum 2 Name: Institutional Affiliation: Week 2 Forum 2 Option A: \$10,000 (present Value) Option B \$20,000 (Future value) Interest to be Earned 6.5% Time period 10 years P.V. formulae PV=FV (1+i)–n or PV= FV/ (1+i) n F.V. formulae FV=PV (1+i) n Calculations: Option A: (Future value of \$10,000) FV= \$10,000(1+0.65)10 = \$18,771.3747 Option B (Present value of \$20,000) PV=\$20,000(1.065) -10 =\$10654.5207 If I base my decision on the present value I would choose option B because it gives more value for the money which is \$10,654.5207 rather than option A which gives only \$10,000. On the other hand, if I base my decision on the future value I would choose option B also because it gives more value for money which is \$20,000 rather than option A which gives \$18,771.3747. My answers are different because of the risk factors included in the interest rate; these risk factors affect the time value for money which postulates that a present dollar is more valuable than the same amount given in future (Campbell & Shiller, 1987). This is so because the dollar at hand today can be invested to earn capital gains/ interest as opposed to the same amount earned in future. The risk of loss of value of money due to factors like inflation, a possible devaluation of currency by the government, loss of purchasing power, adverse political changes and changes in exchange rates is included in the interest rate hence bringing about the difference in the two answers obtained in my calculations above. The compounding effect increases the future value of money as the accumulated interest earns more interest (generating earnings from previous earnings).

## Related samples

Name Name von Professor Disziplin Datum Inhalt TOC o "1-3" h z u 1 Einleitung PAGEREF _Toc507996845 h 32 Chancen und Risiken der Digitalisierung PAGEREF...

Motivation und Gesundheitsverhalten Inhaltsverzeichnis TOC o "1-3" h z u Abbildungsverzeichnis PAGEREF _Toc507269413 h 31. Gesundheit und gesundheitsbezogenes...

Descartes
0
(0)

DESCARTES MEDITATION Student’s Name Institution Introduction This term paper reflects Descartes’ meditation. It gives a critical analysis concerning the...

Student’s Name: Professor’s Name: Course Number: Date: Schizophrenia Psychological disorders are a pattern of irregular thoughts and behaviors which impede a...