Unit 2 - Unit 2 Discussion 1 Time value of Money The idea...

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Unit 2: Discussion 1 - Time value of Money The idea that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received. Compounding refers to situations where a current value is being converted to its equivalent future value for comparison to another future value. Discounting involves moving back through time or the conversion of a cash flow to be received in the future into its equivalent current value. The second important feature to establish is whether the cash flow type is a single payment at some point in time or a series of payments through time. Periodic payment, or series problems, can be solved as a collection of single-payment problems, but fortunately there are more convenient solution techniques for series problems than solving a set of single payment
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Unformatted text preview: procedures. A further distinction of series problems that can be made is whether it involves a series with fixed payment size commonly referred to as uniform series problems or whether the series payment size is growing or declining through time. Finally, the decision variable or item whose value is being sought in the problem must be established. The collection of time value of money techniques can be used to solve for present values, future values, the payment size in a series, the interest rate or yield, or the length of time involved in a decision. Resource: Ross, S. A., Westerfield, R. W., Jaffe, J. F., & Jordan, B. D. (2011). Corporate finance: Core principles and applications (3rd ed.). New York, NY: McGraw-Hill....
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