Engineering Economy Make an introduction about Interest and

Engineering Economy

Make an introduction about Interest and Money-Time Relationship

Write atleast 3 paragraphs. Please make it type written. Thanks.

Solution

The idea of the Money-Time is that money currently available will be with worth more in the future because of the possible earning capacity. The prime concept of financing states that provide money would earn interest; money provided should be worth more in the future. The principle of Interest and Money-Time Relationship gives an explanation of why interest is paid or earned.

The factors that affect interest rates and forecast rates will change when there is a shift in demand due to the fluctuations in wealth, risk, expected returns, liquidity or when there is a change in supply because of the speculations about inflation, changes in the size of government spending or consumer confidence and the investments profitability. Interest, whether it is on debt or a bank deposit, compensates the lender or depositor for the money\'s time. It also underlies investment. Investors would be willing to forgo spending their money now when they are expecting a good return on their investment in the future.

The time value of money concept depicts the relationship between a dollar today and a dollar to be received in the future. The relationship between changes in rates of interest and the ensuing changes in future values is when the interest rate or discount rate and number of periods increases PV decreases, and the FV increases. When more times that passes and the more is the accrued interest, the more the FV will be. Because the FV is based on the interest rate and the value of an investment at the end of an investment period, thus any change of the rate will highly influence the end FV.