2-1 Discussion Time Value of Money response 1
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2-1 Discussion: Time Value of Money (response 1)
Ayana Russell
Southern New Hampshire University
FIN 550 Corporate Financial Management
Dr. Russ Bellemare
December 17
th
, 2023
Hello Yerel,
Your post and choice of a dream home in California are impressive. It is understandable that the property’s worth is high, considering its location in Los Angeles.
I would like to emphasize your final point, which I consider to be pivotal for prospective home buyers: "When acquiring a property, it is imperative to carefully consider the loan conditions and interest rate, as these figures significantly impact the present value, future value, and total interest paid." Furthermore, it is crucial to consider that the acquisition of a house entails a contractual agreement that requires signing paperwork, which can be subject to negotiation. If you desire additional time for inspection, wish to exclude a radon test, or intend to
make the purchase contingent upon obtaining mortgage approval, you may incorporate these conditions into the agreement. (Erb, 2022).
Despite the fact that this is your ideal home purchased with imaginary funds, the disparity between your two situations, wherein the interest rate and time duration are reduced, highlights the crucial significance of the time value of money in everyday life, particularly when it comes to acquiring a property. In our original posts, we both utilized a period of 360 months/30 years and an interest rate of 7%. However, due to a difference of almost 1 million dollars in our home values, the notion of total lifetime payments and the amount of interest paid over the mortgage term remained consistent. Conversely, the second scenario demonstrated a lowered interest rate of 4% together with a shortened loan duration of 20 years/240 months. The significant reduction in your lifetime payments was remarkable, highlighting the significant impact of interest rates on
property purchases, as I previously noted.
The concept of time value of money teaches us that the future is uncertain. In the context of loans, time value of money allows borrowers to accurately evaluate the actual cost of borrowing, while lenders can determine suitable interest rates. (Angel One, 2023)
Great Post. Erb, K. P. (2022, October 12). 10 things you absolutely need to know about buying a Home
. Forbes. https://www.forbes.com/sites/kellyphillipserb/2016/01/05/10-things-you-
absolutely-need-to-know-about-buying-a-home/?sh=3e9ea0b74158 Angel One. (2023, August 24). What is the time value of money and its importance?
https://www.angelone.in/knowledge-center/share-market/time-value-of-money
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