03 May WHAT IS THE OPPORTUNITY COST AND HOW DOES IT RELATE TO OUR DISCUSSION OF THE TIME VALUE OF MONEY?
Complete the two discussion questions 1&2 and respond to 3-5. At least 200+ words and at least one citation.
1. To live comfortably in retirement, you decide you will need to save $2 million by the time you are 65 (you are 30 years old today). You will start a new retirement savings account today and contribute the same amount of money on every birthday up to and including your 65th birthday. Using TVM principles, how much must you set aside each year to make sure that you hit your target goal if the interest rate is 5%? What flaws might exist in your calculations, and what variables could lead to different outcomes? What actions could you take ensure you reach your target goal?
2. Financial ratios are essential to provide an accurate valuation of a firm. Select a publicly traded firm of your choice. Select one ratio each in the areas of (a) performance, (b) activity, (c) financing, and (d) liquidity warnings. Provide an evaluation of the selected firms strengths and weaknesses. Based on the ratios you selected, how well does your chosen firm perform? Explain.
3. Why do you feel these concepts are important in the business world? to you personally?
4. Everything else being equal, the longer the period of time and/or the higher the interest rate, the greater the future value. The annual rate of return can also be referred to as discount rate, opportunity cost, and cost of capital. What is the opportunity cost and how does it relate to our discussion of the time value of money?
5. Net interest margin is a major factor that affects a banks overall profitability and ultimately its return on assets which is the banks net income divided by its total assets. The ROA is really minuscule for banks as interest margins are small compared to non-financial companies gross margins. Wells Fargo and other banks amplify their returns by borrowing money from depositors at low interest and loaning it out to home buyers, car buyers and other borrowns at higher interest rates.
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