TIME VALUE OF MONEY AND ANNUITIES
Que.1
Time value of money is the knowledge that cash available right now is valued more than the vague entirety advanced on because of its possible obtaining limit. This center standard of finance holds that, if money can earn interest, any measure of cash is valued higher the sooner it is received. Investors consider the time value of money while investing as it estimates future benefits and certainty up to some extent in cash outflow and inflows. The time value of money stems from the belief that prudent shareholders choose to obtain money now instead of the similar sum of money due to the current ability of money to rise in price over a specific period (Chen, 2019). For instance, cash invested in an investment account collects a particular rate of interest and is thus said to increase its value. Hence, it should be believed that the average person considers the time value of money when they make investment decisions.
Que 2.
A brief-sighted approach for expressing the requirement is to state that increments made under the ordinary annuity occur at the end of the term. In contrast, projections made there under annuity due occur at the time of the transaction. However, the ordinary annuity is the more commonly used term (Bodie, 2019). The present value of the annuity is the amount that must now be added to guarantee a desired installment at a later date. In contrast, the future value of the annuity is the amount to which existing assets will grow after some time.