Assignment 2: Discussion—The Time Value of Money
Time value of money is a very important concept in corporate finance, but it’s also important in your everyday life. The opportunity to discuss the practical application of time value of money calculations.
Based on the readings in your textbook and your own personal experiences, answer the following questions:
- What decisions do you make that involve time value of money calculations? Use examples and explain your answers.
- Assume you have a mortgage with a balance of $200,000, at 5% fixed-rate interest and 20 years remaining on the loan. Would you benefit in any way from making an extra payment of $100 each month on the mortgage? Justify your answers.
- The present or future value calculations are dependent upon the interest rates used in the calculations. How would you identify the best interest rate to use in a time value calculation? Explain your answer.