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Business Studies
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Subject: Accounting and Finance
Title : Internal Rate of Return - IRR
The internal rate of return is the determination by a graphical method for a giveninvestment of the discount rate which produces a net present value of zero.
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Subject: Accounting and Finance
Title : Investment Appraisal - Net Present Value
The Time Value of MoneyWhich would you rather have - £100 now or £100 three years later?
Answer - £100 now!
Why would you rather have £100 now than £100 three years later?
Two answers to this:
Firstly, if you are going to spend the £100, you would rather spend it now than in three years time. And in three years time the £100 will not be worth as much.
Secondly, if you are going to invest the £100, then you will have the interest on it in three years time to spend as well as the principal.
You have a choice between two investments
Project A: Invest £100 now and recoup £200 after two years.
Project B: Invest £100 now and recoup £200 after three years.
Which is better, and why? Project A is better because you get your profit sooner. An amount of money at a later date is not worth as much as the same amount of money at an earlier date. This captures the idea that money changes value with time, and is called the time value of money.
Government Bonds and the Time Value of Money
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