Why is the time value of money an important concept in financial planning?

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Presentation transcript:

Why is the time value of money an important concept in financial planning?

allows us to see the relationship between time and the value of accumulated sums of money.

Describe the effects of compound interest.

Earning interest on interest

Describe the two factors that affect how much we need to save to achieve financial goals.

1. interest rate 2. time period

What are some practical uses of present and future values?

1.PV tells us how much to set aside for a given interest rate to realize some future value 2.FV tells us how much an amount set aside today can grow to over time

List at least five common examples of annuities.

1. Bond interest payments 2. mortgage payments 3. monthly savings to reach a college education expense goal 4. insurance contracts 5. retirement plans

Define an amortized loan and give two common examples.

An amortized loan is a loan paid off in equal installments. Two common examples are auto loans and home mortgages.