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Hca/270 Time Value of Money

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Time Value of Money

Resource: Ch. 12, 12-A, & 12-C of Health Care Finance

Part I: Complete the following table by inserting your responses to the questions. Cite any sources you use.

|Define the time value of money. |As the worth of money which is received after some specific period can not be equal to the worth of money |
| |today, therefore the time value of money concept is used to determine the present value of future cash flows |
| |or to find future value of present cash flows at a specified rate. |
|Provide a real-world example for the time |Bunny will receive $8,500 per year for the next 15 years from her trust. If a 7% interest rate is applied, |
|value of money. |what is the current value of the future payments |
| |Present value of annuity formula = PMT x (1-(1/1+r^n)/r) |
| |Present value of annuity = 8500 *1-1/1.07^15/.07 = 8500*9.108 = 77417 |
|Why is time such an important factor in |If you receive cash today and if it is received in future, it has different values. The 100000 received |
|financial matters? |after one year is not equal to today’s 100000 due to discount rate, which can be inflation rate or interest |
| |rate. To decide which option is better either to receive cash today or in future, depends on the worth of |
| |future payment than today’s payment. If

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