Wylie has been offered the choice of receiving $5,000 today or an agreed-upon amount in 1 year. While negotiating the future amount, Wylie notes that he would be willing to take no less than $5,700 if he has to wait a year. What is his TVOM in percent?

Question

Business

Alvin Hendrix

6 April, 21:35

Wylie has been offered the choice of receiving $5,000 today or an agreed-upon amount in 1 year. While negotiating the future amount, Wylie notes that he would be willing to take no less than $5,700 if he has to wait a year. What is his TVOM in percent?

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Answers (1)

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Ruffe · Answer 1

=14%

Explanation:

TVOM represents the Time Value of Money and it represents the worth of an amount of money in present time as compared to its worth in the future. TVOM states that money's potential capacity to earn makes it worth money if received today than if it received in the future.

To calculate the Time Value of Money for Wylie, the following step is undertaken

Step 1: Calculate the difference between $5000 to be received today and the $5,700 Wylie demands as minimum to receive if he is to wait for 1 year

=$5,700 - $5000

=$700

Step 2: Use the formula for TVOM

TVOM = (Difference in value in one year's time / The present amount offered today) x 100

= ($700 / $5,000) / 100

=0.14 x100

=14%

Alternate calculation

Use this formula = P (1+r) = F

P = Present value

r = rate

F = Future value

=$5000 (1 + r) = $5,700

= (1+r) = $5700/$500

= (1+r) = 1.14

r = 1.14 - 1

= 0.14 or 14%