DQ2D - vary each period 2 The interest rate(discount rate 3...

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How would you explain the use of TVM in business? What considerations are made when calculating TVM? How can you use TVM to create your own, or someone else’s, retirement plan? TVM is used in business for several purposes. It is used for calculating the expected return on capital projects (investments). It is also used to calculate cash flows for bonds (debt) issued or purchased. When performing TVM calculations one must know at least 3 of the following four variables: Interest rate, period of time, present value/future value, cash flow amount per period (payment). Considerations given to any calculation are: 1) Whether cash flows are consistent or
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Unformatted text preview: vary each period 2) The interest rate (discount rate) 3) Other cash flows related to the calculation 4) The units of measure (months, years, quarter) - these must be consistently applied. A TVM calculation is often used in retirement planning. Basically, one should determine the amount of money that must be saved each period to reach some pre-determined level of savings in the future (point of retirement). And then, based on some amount of cash outflow while in retirement, one has to determine how long the savings will last....
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This note was uploaded on 04/11/2011 for the course FIN 370 taught by Professor Unknown during the Spring '08 term at University of Phoenix.

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