##### Reference no: EM131147872

Time Value of Money

Refer: to Chapter 1 "Time Value of Money" section of Personal Finance.

Respond to the following questions in 50- to 100- words each.

1. What is the definition of Time Value of Money? Please define present and future value?

2. How is simple interest calculated? Provide an example of how it would be calculated. For example, you might use your student loan or a car loan to show this calculation.

For questions 3 - 5, use the Bankrate Compound Interest Calculator http://www.bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx and input provided figures, changing the interest rate and the compounding of the interest rate (annually, semiannually, and quarterly) as delineated below:

3. You place $1,500 in a savings account earning 3% interest compounded annually. How much will you have at the end of four years? How much would you have at the end of four years if interest is compounded quarterly?

4. Change the interest rate to a higher rate. How much will you have at the end of four years if interest is compounded annually at a rate of 5%? How much would you have at the end of four years if interest is compounded quarterly?

5. Now change the interest rate to a lower rate. How much will you have at the end of four years if interest is compounded annually at a rate of 2.5%? How much would you have at the end of four years if interest is compounded quarterly?