The Time Value of Money:

1

• The Time Value of Money
• What it Means To You
• By Michael Simmons

2

• 1 Today ? 1 Tomorrow
• A dollar today does not equal a dollar tomorrow.

3
1 Today gt 1 Tomorrow In fact, a dollar
today is worth more than a dollar tomorrow.
4
1 Today 1 Tomorrow Required Rate In
other words, a dollar today equals a dollar
tomorrow plus the interest you could be receiving
over time.
5

• Required Rate Risk-Free Rate Risk Premium
• Required Rate - the required rate of return above
  which an investment makes sense and below which
  it does not.

6

• Req. Rate Risk-Free Rate Risk Premium
• Risk Free Rate - The theoretical rate of return
  of an investment with zero risk.1
• 1. (http//www.investopedia.com/terms/r/risk-freer
  ate.asp)

7

• Req. Rate Risk-Free Rate Risk Premium
• Risk Premium - The reward for holding a risky
  investment rather than a risk-free one.1
• 1. (http//www.investorwords.com/4306/risk_premiu
  m.html)

8

• What Are Some Return Rates As of 7/1/06?

1. http//www.savingsbonds.gov/indiv/products/ibon
ds_glance.htm 2. http//www.tiaa-cref.org/pubs/ht
ml/inv_today/risk.html 3. http//www.berkshirehath
away.com/2005arn/2005ar.pdf
9

• What is the market rate for your time?
• How much are you currently being paid or could
  you realistically be paid per hour right now for
  work on a continuing-basis.
• IT IS NOT1. How much you think youre worth
• 2. How much you got one time.

10

• 1 Today gt 1 Tomorrow
• Therefore, when evaluating opportunities you
  should expect a larger wage in the future than
  your current market rate, because
• Youre not getting paid right away
• Youre taking on the risk of never getting paid

11
TVOM MR (1RR)t Fill in the blanks Time
Value of Money TVOM Market Rate (MR)
? Required Rate (RR) ? Time (t, years) ?
12
Take Aways

• Be aware of when you will get paid back.
• Include your time in your cost projections
  (salary, commission, or cost of goods).
• Be aware of the risk youre taking on and know
  your required rate of return.

13
Thank You

• Be the change you want to see in the world.
  Gandhi
• s
• Send your questions to info_at_successmanifesto.com
• To download a free copy of TheStudent Success
  Manifesto, visit http//www.successmanifesto.com