Compounding and Discounting

This week, you will examine why a dollar received today is worth more than the dollar received tomorrow, learn the difference between compounding and discounting, and learn about annuities and amortization of loans. In other words, you will explore TVM, which is the foundation of finance that deals with the mathematics behind the valuation of financial instruments such as stocks, bonds, and mortgages. 

Please post something to the discussion board related to the content covered this week. Each post should be succinct and professional, using all elements of POETS (purpose, organization, evidence, tone, and sentence structure). 

Here are some ideas for your post to get you started:

  • Discuss compounding and discounting and how they relate to wealth creation. How does an understanding of these concepts impact your approach to personal finance? Discuss a personal experience such as wealth creation through 401K, retirement planning, savings for kids education, or saving for buying a house.
  • Research and discuss the rule of 72. How is it related to the TVM concept? In other words, if you can make 12 percent return on your investment, how long will it take to double your money?
  • What would you prefer on your savings—monthly compounding or annual compounding? Why?

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