2.Watch the following video: www.youtube.com/embed/OcwJXF8haJU.
3.Read the article, Time Value of Money and its Applications.
4.In a four-paragraph essay, compare and contrast the content covered in the assigned textbook readings, the video, and the article.
5.Complete your essay answers in a Word documentAmerican Journal of Business Education – September 2009
Volume 2, Number 6
77
Time Value Of Money And Its Applications
In Corporate Finance: A Technical Note On
Linking Relationships Between Formulas
Jeng-Hong Chen, Albany State University, USA
ABSTRACT
Time Value of Money (TVM) is the most important chapter in the basic corporate finance course.
It is imperative to understand TVM formulas because they imply important TVM concepts.
Students who really understand TVM concepts and formulas can learn better in chapters of TVM
applications. This technical note intends to present more complete TVM formulas and link their
relationships from the growing annuity perspective to assist instructors in teaching and students in
learning. Although TVM formulas are already available in the textbooks, this technical note
provides another perspective of presenting and summarizing TVM formulas. The simplification or
extension of the growing annuity formula to reach other TVM formulas is discussed in this note.
Keywords:
Time Value of Money Formulas, The Growing Annuity
1.
INTRODUCTION
ime Value of Money (TVM) is the most important chapter in the basic corporate finance course in
business education.
1
Students who really understand TVM concepts and formulas can learn better in
TVM applications, such as bond valuation, stock valuation, cost of capital, and capital budgeting.
Due to the technological advancement, TVM formulas are built in the financial calculator and students can utilize its
function keys to work TVM calculations efficiently. Although financial calculators help students compute answers
faster, understanding TVM formulas is still imperative because these formulas imply important TVM concepts.
With solid understanding of TVM formulas, students are able to identify what the questions ask and compute the
correct answers by using either formulas or function keys.
When learning TVM, students may see many formulas listed in the textbook.
Some students may think
these formulas are difficult to understand because they are confused with these formulas.
In fact, most of TVM
formulas are closely related. When introducing TVM formulas, the instructor can classify them under different
conditions and link their relationships to organize them. This way is easier for students to better understand these
formulas and the essence of TVM. Moreover, students can learn better in TVM applications, taught in later
chapters.
TVM formulas are available in the textbooks.
Some textbooks only list frequently used formulas while
others include more formulas.
In addition, different textbooks present and organize TVM formulas in different
ways.
This technical note intends to present more complete TVM formulas and link their relationships from the
growing annuity perspective to assist instructors in teaching and students in learning.
Although many TVM
formulas listed in this technical note can be found in the textbooks, it provides another perspective of presenting and
summarizing TVM formulas. The simplification or extension of the growing annuity formula to reach other TVM
formulas is discussed in this note.
The remainder of this technical note is organized as follows.
Section 2 describes the growing annuity.
Section 3 simplifies or extends the growing annuity formula to reach other TVM formulas and links their
relationships. Section 4 concludes this note with tables summarizing TVM formulas discussed in section 3.
T
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