Value of Money

What is the time value of money and why is it so important in finance?
If you won the lottery for $10 million and you had the choice to take a lump sum or payments over 20 years,
a. which option would you choose? Why?
b. What questions do you need answered before you decide?
c. What situations may change your decision?
Banks and other lenders are required to disclose a rate called the APR.
a. What is this rate?
b. Why did Congress require that it be disclosed?
c. Is it the same as the effective annual rate?
d. If you were comparing loans could you use their APRs to determine the loan with the lowest effective interest rate?

Sample Solution