, FIN3704 Assignment 2 (COMPLETE ANSWERS) semester
1 2025 DUE 23 April 2025; 100% correct solutions and
explanations.
Question 1
1.1
The principle behind the Time Value of Money (TVM) is that a sum of money has
greater value now than it does in the future due to its potential earning capacity.
This concept is based on the idea that money available today can be invested to
earn returns over time, making it worth more than the same amount received at a
later date.
TVM is important in financial decision-making because it allows individuals and
businesses to compare the value of cash flows received or paid at different times. It
helps in assessing investment opportunities, valuing annuities, determining loan
repayment schedules, and making choices between financial alternatives. By
considering TVM, decision-makers can make informed choices that maximize
value and ensure sound financial planning.
1.2
Present Value (PV) and Future Value (FV) are two fundamental concepts in the
Time Value of Money.
Present Value (PV) is the current worth of a future sum of money or stream
of cash flows, discounted at a specific interest rate. It tells us how much a
future amount is worth today.
Future Value (FV) is the amount of money that an investment made today
will grow to in the future, based on a certain interest rate and time period. It
shows the value of current funds at a later date, after earning interest.
Key Differences:
1 2025 DUE 23 April 2025; 100% correct solutions and
explanations.
Question 1
1.1
The principle behind the Time Value of Money (TVM) is that a sum of money has
greater value now than it does in the future due to its potential earning capacity.
This concept is based on the idea that money available today can be invested to
earn returns over time, making it worth more than the same amount received at a
later date.
TVM is important in financial decision-making because it allows individuals and
businesses to compare the value of cash flows received or paid at different times. It
helps in assessing investment opportunities, valuing annuities, determining loan
repayment schedules, and making choices between financial alternatives. By
considering TVM, decision-makers can make informed choices that maximize
value and ensure sound financial planning.
1.2
Present Value (PV) and Future Value (FV) are two fundamental concepts in the
Time Value of Money.
Present Value (PV) is the current worth of a future sum of money or stream
of cash flows, discounted at a specific interest rate. It tells us how much a
future amount is worth today.
Future Value (FV) is the amount of money that an investment made today
will grow to in the future, based on a certain interest rate and time period. It
shows the value of current funds at a later date, after earning interest.
Key Differences:
