Week 3: Time Value of Money Assume.
Week 3: Time Value of Money
Assume that you have been working for an organization for the last three years after finishing your undergraduate degree in finance and accounting. The job is stable, it pays well, and you have been performing well in it. In addition, you did not have to make any critical financial decisions, either for your organization or in your personal life, during these years. All you cared about were receiving your paychecks and making payments on your bills and student loan.
Suddenly, you are faced with a few critical financial decisions, all at the same time. You plan to get married next year and need to save some money every month to meet your wedding expenses. You and your future spouse have come up with a wedding budget and both of you need to save regularly to meet that budget. In addition, you need to purchase a new car immediately. Your old car is frequently breaking down and the repair expenses have started to pile up. What kind of car will you buy? How much of a down payment should you make? Which of the many available payment plans should you use? To add to these decisions, your boss has just asked you to evaluate a potential investment that your division is considering. He wants you to determine whether purchasing a certain asset for the division will be profitable over a five-year period.
So many decisions to make within a short span of time! How will you approach them? How can your knowledge from your degree in finance and accounting help you in your decision-making process? What are some of the financial management concepts you can apply to make the process smooth and effective?
This week, you analyze the time value of money (TVM) concepts, including compounding, discounting, and annuities. You also compare different cash flow plans.
Learning Objectives
Students will:
- Analyze time value of money concept
- Compare types of annuities
- Identify concepts of financial management related to financial statements and time value of money
Photo Credit: [spxChrome]/[E+]/Getty Images
Learning Resources
Required Readings
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2017).
Essentials of corporate finance (9th ed.). New York, NY: McGraw-Hill Irwin.
- Chapter 4, “Introduction to Valuation: The Time Value of Money” (pp. 97-117)
- Chapter 5, “Discounted Cash Flow Valuation” (pp. 122–154)
Document: Week 3 Discussion Template (Word document)
Required Media
Laureate Education (Producer). (2014d).
Time and value of money. [Video file]. Baltimore, MD: Author.
Note: The approximate length of this media piece is 4 minutes.
Discussion: Time Value of Money
The concept of time value of money is one of the most important topics in finance you will need to be familiar with as a financial manager. It is the basis of how all assets are valued.
For this Discussion, read this week’s resources and feel free to go over some of time value of money (TVM) problems from the course text using Excel or a financial calculator to understand the concepts.
By Day 3
Post 200- to 250-word explanation of compounding and discounting as two TVM concepts. Also, explain the types of annuities and compare any two of them. In your post, state why these concepts are important for both managers and investors to build wealth.
Be sure to support your work with specific citations from the Learning Resources and any additional sources.
Read a selection of your colleagues’ postings.
By Day 6
Response to two or more of your colleagues’ postings, who selected a different company than you, in one or more of the following ways:
- Ask a probing question.
- Share an insight from having read your colleague’s posting.
- Offer and support an opinion.
- Validate an idea with your own experience.
- Make a suggestion.
- Expand on your colleague’s posting.
Return to this Discussion in a few days to read the responses to your initial posting. Note what you learned and the insights you gained as a result of your colleagues’ comments.
Note: Refer to the Discussion Template in this week’s Learning Resources for your main post and response.
Submission and Grading Information
Grading Criteria
To access your rubric:
Week 3 Discussion Rubric
Post by Day 3 and Respond by Day 6
To participate in this Discussion:
Week 3 Discussion
Week 3 Exam
Midterm
Welcome to the Week 3 Midterm Exam.
You will have 2.5 hours (150 minutes) to complete the Exam. If you decide to save and exit the Exam prior to completion, you must logout of Blackboard or the clock will continue to run. You may take the Exam one time. It is made up of 25 multiple-choice questions, and is worth 100 points. It covers Chapters 1–5 of the course text.
By Day 7
Complete the exam of this week.
Submission and Grading Information
Submit Your Exam by Day 7
To submit your Exam:
Week 3 Exam
Week in Review
This week you analyzed the time value of money concept and compared types of annuities. You also identified concepts of financial management related to financial statements and time value of money.
