Time Value of Money

Paper Summary:

This paper discusses the concept of time value of money (TVM), a principle showing that money can earn interest, and that money received in the present is worth more than money (of the same amount) received in the future. The paper further discusses how money can grow through various investment vehicles such as banks, mutual funds and the stock market.

From the Paper:

"Compound interest happens when your money grows along with the interest amounts that it accumulates over time. In the above example, suppose that you invested $100 for 2 years at 5%. After 1 year, the total amount would be $100 + $5 (5% of $100) = $105. After 2 years, however, it will earn $105 + $5.25 (5% of $105) = $110.25. The $5 interest amount you gained after 1 year has earned an additional $0.25 after the second year (Garrison 2006). It has been said that compound interest is the greatest wonder of the universe, as it makes money grow larger and larger over time."

Sample of Sources Used:

• Garrison, Sharon (2006). StudyFinance.com. "Time Value of Money" Retrieved February 24, 2006 from http://www.studyfinance.com/lessons/timevalue/index.mv
• Croome, Shauna (August 27, 2003). "Understanding the Time Value of Money" Retrieved February 24, 2006 from http://www.investopedia.com/articles/03/082703.asp
• Wikipedia contributors (2006). "Opportunity cost". Wikipedia, The Free Encyclopedia. Retrieved February 24, 2006 from http://en.wikipedia.org/wiki/Opportunity_cost
• Wikipedia contributors (2006). "Rule of 72". Wikipedia, The Free Encyclopedia. Retrieved February 24, 2006 from http://en.wikipedia.org/wiki/Rule_of_72

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