Does it matter if the investment plan pays you 10% per year for the first 20 years and 7%
percent per year for the next 10 years? Why or why not?
Answer: yes it does matter; rate is the actual return which investor will receive from the
investment higher rate higher will be returns vice versa. It is major goal of investors that
rate of returns should be higher as there are risks of increasing interest rates in market for
coming time. If in this scenario I would have received same 10% for last ten years instead
of 7% then my investment value at the end of 30 years would have $1,744,940.23 so as
result I would have $421,539.16 higher returns than what I received on 7% after 30 years.
Rates of returns do matter in financial decision making it is important to have higher rates
of returns on investment.
How does the time value of money work?
Time value of money is basically the main them of finance on which all most whole
finance is based, it is idea that say dollar value of today worth more than the dollar value
of future due to their earnings capacity. For example If I have $100 I can buy ten burgers
from this amount if I keep this money for next five years and then I try to buy ten burgers
with that $100 it would not be possible because due to increasing inflation prices increase