Running Head: Time Value of Money
Time Value of Money
Introduction
The time value of money is an initiative where an investor has preferences of receiving a payment of a fixed value today, rather than an equal value in the future. A common example, interest, applies when a payment is received and interest is earned on that money until a specified future date. The most basic formula used in standard time value of money calculations is the present value of a future sum discounted to the present. The time value of money serves as groundwork for numerous branches of the study and applications of finance such as business, government, and consumer or household finance. Through observation of international capital markets, the competition for funds within capital markets and sources of capital funds many application of the time value may be applied. Security market organization and regulation are of great importance as they involve funds from government bonds to common stock and everything in between. The influences of security markets include variables such as interest, economic health, confidence of investors, and more. An understanding of the components of a discount and concepts of interest rates are useful in determining relationships of the time value of money.
International Capital Markets:
Capital markets are markets where people, companies and governments with more funds transfers the funds to other entity who have shortages of funds. Capital markets are designed to promote economic efficiency by shifting money from one source to another. The two key capital markets are stocks and bonds. The concept for capital markets is to direct capital to productive uses and ensure that the investments have been distributed to the appropriate markets. When the investments are made the cash or savings is converted into risky assets with hopes of receiving enhanced benefits in the future. Buying stocks, bonds and real estate are some examples of...