[sabbycat]

Is there a time recently when you could have (or did) use a TVM calculation to make a decision? What was the decision and how could (or did) the calculation have helped you make a more informed decision?

I am not really clear on what TVM calculations are used for.

Thanks for any help

[DozerOp3]

TVM is used a lot in accounting. For example, it is used in lease and pension calculations. Accountants need to know the Present Value of future cash flows. This is so they can book enough money in their accounts to cover the money needed when the expense occurs. So, for pensions (in the simplest terms) you need to know how much money you will have to pay somebody each year when they retire several years from now. But, the value of the dollar now, is not equal to the value of the dollar in 10-20 years. So, accountants and finance people use formulas to determine how much money now will equal the money they need to have in the future. Make sense?

[sabbycat]

Yes thank you it did:)

[jakester]

sabbycat -

TVM can also be used for trying to make personal financial decisions as well. For instance, let's say you had $10,000 that you wanted to put aside into a savings account or a CD. Your goal is to earn $2,000 (effectively turning $10,000 into $12,000).

Let's say one option is to put your money into a 5 year CD. Try to figure out what interest rate you'd need as a guarantee in order to achieve your goal.

Also, making a decision on a loan is another example of TVM. Let's say you know you can afford a car payment of $250 a month. You know that you have decent credit and the standard car loan term is about 48-60 months. So you can assume that you could get a reasonable interest rate of 2-5%. Assuming a 4% interest rate, how much car could you afford given a payment of $250 per month for 60 months?

There are plenty of examples of how TVM can be used practically in everyday life. Let me know if this helped or not.