How does the time value of money impact you? Write 800 words about a real or fake situation; write about how you will use the time value of money to solve that situation, and how to financially analyze that situation. Why did you choose said assumptions you did (n, i, and amounts). What would you recommend based on the assumptions determined by you?
For example, imagine you could earn 10% annual interest at your bank. And imagine a friend owed you money. They offered to pay you back $1,000 today, or $1,050 a year from today. Since you could have $1,100 next year if you put that $1,000 in the bank today, should you take the immediate repayment?
When considering the interest rate (i), there are two main factors: risk and opportunity cost.
Current Market Trend: What would be the current market trend for your scenario and what factors would be influencing the majority of decisions?
Here are some examples – come up with your own
Scenario 1: Congratulations! You’ve finally won the lottery! The lottery commission is giving you a choice of how you would like to be paid. You can either receive $1000 per week for life or an immediate lump sum settlement of $1.5 million. What would be the best option? There is no straightforward answer to this situation. Your answer would depend on a few factors that are specific to your life situation, such as:
Scenario 2: You are receiving a payout which is worth $100 today. This same payout, if taken later, will be worth $110 then. When making your decision, consider the following:
Scenario 3: You’re going to get an extra $1,000 on your CMU student account. There are many things you can do with that money, but you’ve narrowed it down to two choices. Should you invest the $1000 for the next 10 years or use it to pay down student debt today? When you make your decision, you should think about:
You are NOT required to use your real personal finances, but you can if that helps with the assignment.
Submit your text answers and an Excel spreadsheet.
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