Time Value of Money

Associate Level Material

Time Value of Money

Resource: Ch. 12, 12-A, & 12-C of Health Care Finance

Part I: Complete the following table by inserting your responses to the questions. Cite any sources you use.

|Define the time value of money. |The value of money in a given amount of interest earned or inflation accrued over an amount of time. |
|Provide a real-world example for the time |A 10% interest rate for an investment of $3,000. In a year the interest would be $300 |
|value of money. | |
|Why is time such an important factor in |Time is important because in the long run you end up paying more in interest. |
|financial matters? | |
|How would you use the time value of money to |I would try to make a bigger payment, so I can pay off it off faster. Of course there is the actual payment |
|your financial benefit? |that would need to be made but I would try to pay more than that so I can pay if off faster and the interest |
| |won’t be as much in the end. Let’s say if the loan was for 5 years I would want to try and pay it off in 3 if|
| |I possibly could. |

Part II: Complete the following table by calculating the ratios.

Present Value
|Amount |Compounding period |Rate of interest |Present value |
|$100,000 |Annual |6% for 10 years