Econ

- ECONOMICSAn investor send awaynot comp argon the cash flows from diverse investments even though the disturb ranges are the same and other risk component outs are the same . This is because probably the timing of the cash flows . The source to a fault may affect the nature of the cash flows lived . By public lecture of the timing of the cash flow , I baseborn the clipping jimmy of m peerlessy . If an investor invests in an investment that gene directs an vex rate of 8 and let s say the this interest rate is not reliable at the same metre , severally recant alone have a different set . They testament need to be evaluated to ascertain the true appreciate in terms of lay valuesThe prison term value of money portion makes all cash flows genuine , if not received at the same time to have different values . In s uch a situation the present value is give in determining the true value of the future combine of money to be received . The present value assumes that the value of money is affected by when it is received . It is said that a dollar sign received at present is more than a dollar to be received at some time in the future .

The actual present value of the judge income by an investor of the same magnitude but at different generation bequeath depend largely on the salary fortune of the investorTake the above example where the investor receives the first interest from investment A in June 2008 and receives from investment B in June 2009 . This investor today , in February will wish to know whether the 800 he will receive in Jun! e 2009 is equivalent to 800 received in June 2009Investment A present value is Amount (present value factor ) year one800 (0 .926 740 .8Investment B present value is Amount (present value factor ) grade twoInvestment B present value 800 (0 .857 685 .6From the calculations above we can date that the 800 is not equivalent to the 800 that will be received one year from now or that one to be received two years from today . Therefore the time value of money will be considered when receiving the cash flowReferencesGitman L . J 1990 : Principles of Managerial Finance , Harper Bow ...If you fate to have got a full essay, order it on our website: OrderEssay.net

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