Lesson 3.4 The Time Value of Money February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved1 Introduction Everyone spends money – we.

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Lesson 3.4 The Time Value of Money February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved1 Introduction Everyone spends money – we buy a cup of coffee, a burger or maybe a magazine What we dont do is ask our self what if What if we hadnt made those small purchases, but had put the money into an interest-bearing account and didnt touch it for 30 or 40 years There is an opportunity cost associated with all spending and the Time Value of Money concept can be used to calculate it

Lesson 3.4 The Time Value of Money February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved2 Objectives Define the Time Value of Money (TVOM) concept You should be able to do the following after completing this lesson Explain what the TVOM concept assumes and why it is important Define the Future Value (FV) of money concept Define the Present Value (PV) of money concept Demonstrate how to use the FV formula Demonstrate how to use the PV formula

Lesson 3.4 The Time Value of Money February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved – Interest Review Two major types of interest – simple and compound In this section, you will review what you have learned about interest Four major interest rates – nominal, period, effective & APR The APR represents the true cost of a financial transaction The time between interest calculations is the compounding period The compounding period can be annual, semi-annual, quarterly, monthly or daily To speed up the growth of money – increase the interest rate or calculate the interest more frequently

Lesson 3.4 The Time Value of Money February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved – Time Value of Money Why it is essential to your financial wellbeing to understand the TVOM concept The value of a dollar in the past In this section, you will learn: The value of a dollar in the future The factors necessary to calculate the TVOM

Lesson 3.4 The Time Value of Money February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved – The Affect of Time In this section, you will learn: How you will think of time as you age Why money increases in value with time Why time is a critical element in increasing wealth Why you should start saving & investing early in your career Time Value of Money You will run the following Interactive Example: What happens if you dont start saving & investing early in your career What it takes to meet a future financial goal if wait to start saving & investing

Lesson 3.4 The Time Value of Money February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved – Future value In this section, you will learn: What the Future Value concept is The formula used to calculate the Future Value of money How to use the FV formula to calculate the Future Value of money

Lesson 3.4 The Time Value of Money February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved – Present value In this section, you will learn: What the Present Value concept is The formula used to calculate the Present Value of money Present & Future Value You will run the following Interactive Exercise: How to use the PV formula to calculate the Present Value of a future sum of money

Lesson 3.4 The Time Value of Money February 15, 2011Copyright © … REMTECH, inc … All Rights Reserved8 Discussion Questions What does the Time Value of Money concept have to do with starting to save and invest as soon as you enter the work force? What does the Time Value of Money concept have to do with choosing investments?