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    BA 223 Chapter 3 - Midterm Reaction Paper

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    ram tibay

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    BA 223 Chapter 3 - Midterm Reaction Paper

    Uploaded by

    ram tibay
    2 views2 pages

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    2 views2 pages

    BA 223 Chapter 3 - Midterm Reaction Paper

    Uploaded by

    ram tibay

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 2

    Name: Krismar D.

    Tibay Section: 2-1a-1 MBA


    Subject: BA 223 Financial Management Lecturer’s Name: Renato Juan C. Fajardo, MBM

    Chapter 3: The Time Value of Money


    (Reaction Paper)

    In this chapter, we learned that the Time value of money (TVM) is an important concept in
    personal and business financial management. It is significant for individuals or managers need to
    appreciate the idea of time value of money because it holds the returns that the company would be
    making in the years to come in terms of short-term or long-term investments. The time value of money
    can be practically applied in the following financial decision-making scenarios.

    Investment analysis
    For investors, it is essential to understand and employ the concept of TVM as this will help them
    in assessing investment prospects and savings schemes or paying off debts in a better way. Most people
    are interested in calculating the future value of an investment made today. This is important when
    determining savings targets, for instance preparing for retirement or achieving other objectives that
    involve financial planning. For me, since I have already understood the importance of TMW, I will start
    considering it in projecting and choosing the best investment or financial planning to ensure that this
    investment or project is worthwhile. In the investment or project decision, whether you will deposit your
    fund in the bank or invest it to another financing institutions, you should always consider the risk and
    return by analyzing the cash flow of these investments to ensure that your decision will align to your
    personal financial goals.
    Loan amortization
    For individuals who are managing their debts, you can easily determine how much is the amount
    of payment that go towards interest versus principals. With that, you may assess and decide if you
    whether it would be beneficial to refinance or repay in advance. For example, if you have an existing loan
    with the remaining balance of P10,000.00 inclusive of interest for P3,000.00. If you will repay the
    remaining loan balance in advance, you can only pay the principal of P7,000.00 and can use as additional
    investment that will incur interest of P3,500.00. Since the amount of interest that will earn from the
    investment is higher that the loan interest, you should decide to pay the loan in advance to gain that
    interest income.
    Retirement planning
    TVM assists individuals in determining the amount of money that they will have to save today in
    order to achieve certain end-of-career investment return in the future. For me, it is very important for
    every individual to know good decisions as the money you save for your pension impacts your standard
    of living during the retirement years. Since this is a long-term investment, we must ensure that we have
    enough resources to cover your retirement amortization until it matures. You must also need to understand
    your retirement needs before considering investing in this plan by estimating how much comfortable life
    you need after retirement, considering all the external factors such as inflation, health costs and cost of
    living.
    2

    The Time Value of Money (TVM) has always been crucial in making reasonable investment
    choices, repaying debts, and setting financial targets for the future. It benefits us (the investors) on
    evaluating money over time, thus enabling investment, loan, or saving decisions. Therefore, as we
    understand the importance of TVM, it enables us to make informed decisions and ensures financial
    security.

    Chapter 8: Capital Budgeting - Buendia/ Javier/ Tibay

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