FIN3704
Assignment 2 Semester 1 2025
Unique #:
Due Date: 23 April 2025
Detailed solutions, explanations, workings
and references.
+27 81 278 3372
, QUESTION 1
1.1 Principle of the Time Value of Money (TVM)
The Time Value of Money (TVM) is the idea that money today is worth more than
the same amount in the future due to its earning potential. This principle is based
on the opportunity to invest money and earn interest or returns over time.
It is important in financial decision-making because it helps businesses and
individuals compare the value of cash flows at different times, plan investments,
evaluate loans, and make sound budgeting and financial planning decisions.
1.2 Present Value vs. Future Value
Present Value (PV) is the value today of money you’ll get in the future.
In Excel:
=PV(RATE, NPER, PMT, FV, TYPE)
Future Value (FV) is the value in the future of money you have now.
In Excel:
=FV(RATE, NPER, PMT, PV, TYPE)
1.3 Role of Compounding in TVM
Compounding is the process of earning interest on both the original principal and
the accumulated interest from previous periods. It plays a critical role in TVM
because it shows how money grows over time, making future values larger the
longer the money is invested. The more frequently interest is compounded, the
greater the return, which makes compounding essential in investment decisions,
savings plans, and loan calculations.
QUESTION 2
Varsity Cube 2025 +27 81 278 3372
Assignment 2 Semester 1 2025
Unique #:
Due Date: 23 April 2025
Detailed solutions, explanations, workings
and references.
+27 81 278 3372
, QUESTION 1
1.1 Principle of the Time Value of Money (TVM)
The Time Value of Money (TVM) is the idea that money today is worth more than
the same amount in the future due to its earning potential. This principle is based
on the opportunity to invest money and earn interest or returns over time.
It is important in financial decision-making because it helps businesses and
individuals compare the value of cash flows at different times, plan investments,
evaluate loans, and make sound budgeting and financial planning decisions.
1.2 Present Value vs. Future Value
Present Value (PV) is the value today of money you’ll get in the future.
In Excel:
=PV(RATE, NPER, PMT, FV, TYPE)
Future Value (FV) is the value in the future of money you have now.
In Excel:
=FV(RATE, NPER, PMT, PV, TYPE)
1.3 Role of Compounding in TVM
Compounding is the process of earning interest on both the original principal and
the accumulated interest from previous periods. It plays a critical role in TVM
because it shows how money grows over time, making future values larger the
longer the money is invested. The more frequently interest is compounded, the
greater the return, which makes compounding essential in investment decisions,
savings plans, and loan calculations.
QUESTION 2
Varsity Cube 2025 +27 81 278 3372
