Importance of time-value of money in investment decisions:

Time value of money is very obliging for taking various type of investment decisions that we can show in following ways:

1. It is helpful for computing the future value of cash inflows:

With the aid of time value of money, investor can recognize future value of money when he invests his principle amount nowadays. We can compute this amount with the following formula:

Amount = Principle (1+ r/100) and its power no. years
or
FV = PV (1+i)ⁿ

Assume that Ram invests Rs. 100 annually for 6 years; he will obtain 10% compound interest on it from bank. What he receives today after 5 years.

{*} We can recognize future value of money.

A = p(1+r/100) power t
A = 100 X (1+10/100) power 5 years

Future value of money (A) = 100 X (1.1) power 5 years
Future value of money = Rs. 161.051

Not only cash inflow's future value, we can as well compute future value of annuity with the given formula:
FV (A) = A. [(1+i)ⁿ - 1]/i


2. It is helpful for making least reserve:

Computation of present value and computation of net present value is completely based on time value of money. When we know cut off rate or minimum discount rate which we have to reimburse or receive, then we can recognize minimum amount of reserve for achieving particular amount after some time, it is based on the idea that when we invest small amount, interest will automatically comprise in it and after sometime, this small amount will equivalent to our target amount. Assume, you require Car after 10 years, you are capable to save Rs. 2000 per month, when you invest it in that scheme which offer you high interest, you can know whenever your small saving will become as equivalent to the amount of Car. Its formula is simply opposite the formula of Future value of cash inflows.

Present Value of Money or Principle = Future Value X [1/(1+(r/100))^t]

Assume that a man will receive Rs. 161.051 after 5 years, when cut off rate is 10%, and then what is the present value of that money? After computation with above formula it will be Rs. 100.

Latest technology based Finance Online Tutoring Assistance

Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Finance help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Finance, project ideas and tutorials. We provide email based Finance help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Finance. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Finance Homework help and assignment help services. They use their experience, as they have solved thousands of the Finance assignments, which may help you to solve your complex issues of Finance. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.