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Essay / Research Paper Abstract
This 4 page paper provides definitions and examples for the following items: The Time Value of Money, Interest Rates and Compounding, Present Value of a Future Payment Received, Opportunity Cost, Annuities and the Rule of 72. Bibliography lists 6 sources.
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4 pages (~225 words per page)
File: RT13_SA644TMV.rtf
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year or a few years from now ("Understanding the Time Value of Money," 2006). If one invests money, they will gain money over time ("Understanding the Time Value of Money,"
2006). To understand the time value of money, one would take an example and look at the difference if one were to put the money in a mattress or invest
it in a bank ("Understanding the Time Value of Money," 2006). The difference is the time value of money ("Understanding the Time Value of Money," 2006). In other
words, someone says that they have a hundred dollars and they want to keep it in an envelope and use it in an emergency. Another individual says "Why dont you
put it in the bank?" What is the value if someone invests $100 dollars instead of keeping it at home? If someone puts $100 in the bank at a rate
of 6%--an approximate rate given by some online banks with no minimum-at the end of ten years, the interest earned is equivalent to $79.08 when compounded annually ("Webmath.com," 2006). That
is the time value of money. One can spend $100 or save it. While the interest earned is still rather small, one can imagine that investing $10,000 over a period
of ten years would have a much greater yield. Indeed, it would be about ten times that much or $7908.48 ("Webmath.com," 2006). II. Interest Rates and
Compounding The examples provided above demonstrate the time value of money in addition to the magic of compound interest. What is compound interest exactly? When one borrows money form
a bank, interest is paid to the bank, but if one puts money in the bank, they earn interest ("Compound Interest," 2006). Compound interest "is paid on the original principal
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