Question: How important is the time value of money? A recent search on one web engine returned more than 791 million hits! It is important to understand the calculations behind the time value of money, but the advent of financial calculators and spreadsheets has eliminated the need for tedious calculations. In fact, many websites offer time value of money calculators. The following is an example from Moneychimp's website, www.moneychimp.com. You need $150,000 in 25 years and will invest your money at 9.2 percent. How much do you need to deposit today? To use the calculator, you simply enter the values and hit "Calculate." The results look like this:
1. Use the present value calculator on this website to answer the following: Suppose you want to have $140,000 in 25 years. If you can earn a 10 percent return, how much do you have to invest today?
2. Use the future value calculator on this website to answer the following question: Suppose you have $8,000 today that you plan to save for your retirement in 40 years. If you earn a return of 10.8 percent per year, how much will this account be worth when you are ready to retire?