Analyzing Time Value of Money in Finance: Assignment Solution

This assignment solution addresses the core concepts of the time value of money (TVM) in finance. It explains how the present value of money is more valuable than the future value due to its potential to earn more. The solution applies the TVM concept to investment analysis, emphasizing the use of discount rates to determine present values. It also explores the phrase "A bird in the hand is worth two in the bush," linking it to the preference for immediate profits or dividends over uncertain future returns. The assignment further highlights the importance of stable dividends for investors. The solution includes references to relevant financial management literature.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Author’s Note:

1FINANCE
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................2
References..................................................................................................................................3

2FINANCE
Question 1
The time value of money (TVM) is the concept reflecting the worth of money today
or at present value showing that the value identical today is worth of earning more than value
received in future time. The worth of value today is desired more because of its potential
capacity to earn more. The concept of time value of money is well applied in the finance
industry for the purpose of discounting the present value of an investment or cash flows.
Discount rate applied for determining the present value shows the net required rate of return
by the investors on an investment (Chan & Rate, 2018).
Question 2
The phrase of a “Bird in the Hand is worth Two in the Bush” is used for saying that it
is optimal for having something today itself and retain it rather than losing it by for attaining
something else in the future terms. The same concept can be well applied in the case of time
value of money where management of a company retains some part of the profit in terms of
dividend retained in the business and earning more amount in the future in terms of higher
dividend for the company. Investors prefer stable dividend or profits at a today time rather
than hoping for some higher expected return from the investment (Johari et al., 2018).

3FINANCE
References
Chan, K., & Rate, E. A. I. (2018). & 6 The Time Value of Money. Financial Management.
Johari, M., Hosseini-Motlagh, S. M., Nematollahi, M., Goh, M., & Ignatius, J. (2018). Bi-
level credit period coordination for periodic review inventory system with price-credit
dependent demand under time value of money. Transportation Research Part E:
Logistics and Transportation Review, 114, 270-291.