Learning and Development - Time Value of Money

Assignment of learning and development

[pic 2]

Submitted to: Dr. Shaji Kurian 

Submitted by: Deeksha Sharma

                                                                                                                      Vinith kunder

All our childhood mothers want all of us to drink milk, but we keep procrastinating because we don’t like. And reply we used get to this was, “it will spoil if I keep it for very long”. And yes, this happens, the proteins and nutrition’s of milk spoil if we keep it for too long. [pic 3]

The same is with the time value of money. Here let’s consider milk is money, and it have some value, but value will be gone if we keep it for too long. This leads to a concept that

 “Dollar today is worth more than a dollar tomorrow”

Which means that money today is having more value than money tomorrow and if we don’t do anything to money it will keep losing its value.

Now, if we put milk in fridge we can save it for a longer time. Its value can we retained for some time.  

Same is with money. Considering fridge as bank and its cooling as the rate of interest on the milk(money). The value can be retained over the period of time depending on the interest rates of the bank you are putting your money into.

Let’s have a look at all these items.

[pic 4] 

The prices of commodities have increased with time. This can be addressed by considering the below illustrated example:

The price of Coca Cola has increased steadily with time. The cost of a 500ml bottle back in 2010 cost 28 INR, while the same costs 40 INR today, in 2018.

Let us suppose that we are in 2010 and I give you 28 INR to buy coke bottle, but you rather than buying the coke bottle planned to save the money and put it into piggy bank.                    [pic 5]

In the year 2018 you all of sudden remember that you had put some money in 2010 in piggy bank and you want to have then now. You get 28 INR from your piggy bank.

Now the question here is will you be able to buy the coke bottle which you wanted to buy back in year 2010 and whose price is 40 Rs. in year 2018.

The answer will be “No”

Why did this happen?

This happened because the purchasing power of 28 INR went down. In simple words it means that 28 Rs. in 2010 had more value then 28 Rs. in 2018.

And what if rather then putting then into piggy bank you would had put them in bank saving account. Where you will be getting the rate of interest.