Good Morning Thomas, please can I get a loan of one thousand naira from you asked Michael?\n <\/p>\n
Sure responded Thomas. When do you need it and when will you pay me back my money?\n <\/p>\n
I need it tomorrow. Michael stated, but I will pay back in three years.\n <\/p>\n
That means in three years, Michael, you will pay me one thousand two hundred and seventy naira because I will be charging you a 9% interest rate per annum.\n <\/p>\n
Hey Thomas, I am your friend Michael Chanted. Why should I pay you back with interest?\n <\/p>\n
My friend, money has value and money either loses or gains value over time. Thomas explains.\n <\/p>\n
If you plot a graph that depicts Value on the Y axis and Time on the X axis over a one year period of a loan without interest, the graph will be a flat graph with no activity.\n <\/p>\n
However, if you plot the same graph with an interest component, you will see there would be a regular increase in the value of money over time. Therefore there is a time value of money.\n <\/p>\n
For example, if I borrow you a thousand naira and you have to pay me 9% interest over a three year period. If we compute simple interest on the principal, we will get the following.\n <\/p>\n
Hey Thomas, Michael yells. Please before you continue, what is Simple Interest? What is Principal? What is interest and why is the interest simple?\n <\/p>\n
Simple Interest can be defined as the interest paid or earned on the original amount borrowed.\n <\/p>\n
Principal is the loan amount that is borrowed. In your case, the principal is One thousand naira.\n <\/p>\n
Rate is the interest rate that you will be paying over the period of borrowing time.\n <\/p>\n
Interest is money paid for the use of money.\n <\/p>\n
For example, if you agree to take my loan of 1,000 Naira at rate of 9% repayable in 3 years. Then the interest you will be paying will be computed as follows:\n <\/p>\n
Simple Interest (SI) = Principal * Interest Rate * Number of Time Periods\n <\/p>\n
Simple Interest (SI) = 1000 * (0.09) *(3) = 270\n <\/p>\n
Ah! I see how this works now. Nevertheless, I want to negotiate that you give me the loan at 5% interest rate, Michael Pleads.\n <\/p>\n
It sounds like a reasonable request. Let me review my books and revert.\n <\/p>\n
\n <\/p>\n","protected":false},"excerpt":{"rendered":"
The Time Value of Money…<\/p>\n","protected":false},"author":1025,"featured_media":40541,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[337,336],"tags":[569,571,570],"class_list":["post-38973","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting-and-bookkeeping","category-business-accounting","tag-money","tag-time-is-money","tag-time-value-of-money"],"yoast_head":"\n