How do you explain the use of time value of money

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1. How do you explain the use of time value of money (TVM) in business? What considerations are made when calculating TVM? How may you use TVM to create your own, or someone else's, retirement plan?

2. Give three examples of how the time value of money might take on importance in business decisions.

3. Supposed you consider depositing your savings $10,000 in one of the 3 banks, all of which pay 10% interest; bank A compounds annually, bank B compounds semiannually, and bank C compounds daily. Which bank would you choose? Why? (Please show the details of your calculation.)

5. Say Mary wins $10 million. The lottery agency offers her a choice: take $500,000 per year over 20 years or take a one-time lump-sum payout of $6,700,000. Assume discount interest rate is 3%, which option shall Mary choose in order to gain the greatest value.

Reference no: EM13861556

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