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• From the e-Activity, create a personal scenario that exemplifies the time value of money that includes the opportunity cost involved.

According to Investopedia, the time value of money is the concept that money available today is worth more than the same amount of money in the future based on its earning potential up until the time the future amount is received. It is the potential of money to grow in value over time. The basic understanding is that a bird in hand is worth two in the bush. Money is worth more to the user when it is available immediately because money can be invested or earn interest. It applies to many contracts where delayed payment requires compensation for the time value of money.

Suppose you were to receive $100 today or the same amount in one year. If you were to invest the $100 at an annual interest rate of 8%, it would increase by a factor of 1.08 to $108 in a year. If you were to divide the $100 by the same factor, the $100 received in a year would be worth $92.59 today. The time value of money, also referred to as the present discounted value, is clearly illustrated. The sooner you have money, the more worthy it is because you can put it to use.

• Describe one (1) real-life example that shows the manner in which a person can use an annuity for retirement planning.

An annuity is an insurance product that pays out income. You make an investment in the annuity, and it then makes payments to you at a future date. There are two types of annuities: immediate and deferred. You begin to receive your payments as soon as you make the initial investment for an immediate annuity while your money is invested until you are ready to start receiving payments. Payments can be in instalments or even in a lump sum.

An annuity can be a useful retirement planning tool. You can invest...

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