Impact of Interest Rates
Impact of Interest Rates
Impact of Interest Rates
One of the most important topics presented in this course is the time value of money. Part of the time value of money calculation concerns the use of an interest rate, often referred to as a discount rate. This basic concept applies to all areas of financial planning.
Using the readings of this module and the Argosy University online library resources, respond to the following:
- How does the current market rate of interest impact time value of money calculations?
- How can this aspect alter your current spending, savings, and budgeting patterns?
- How have you previously used the time value of money in your own personal financial planning and/or will plan to use it in the future?
Support your statements with examples and scholarly references.
Write your initial response in 200 words. Apply APA standards to citation of sources.
By the due date assigned, post your response to the appropriate Discussion Area. Through the end of the module, review and comment on at least two peers’ responses. Consider the following:
- Compare and contrast your experiences with those of your peers’.
- Identify any points you had not previously thought about or with which you disagree.
(Impact of Interest Rates)
The current market rate of interest significantly impacts time value of money (TVM) calculations, as it determines the present value and future value of money. A higher interest rate increases the future value of investments, making them grow more over time. Conversely, a lower interest rate results in a lower future value, as there is less potential for money to grow. In terms of borrowing, a higher interest rate makes loans more expensive over time, affecting both the amount borrowed and the repayment schedule.
This aspect of interest rates also influences personal financial behaviors. For instance, in a high-interest rate environment, I might be more inclined to save and invest rather than borrow, as the returns on savings and investments could outweigh the cost of borrowing. On the other hand, in a low-interest rate environment, borrowing may become more attractive, while saving might yield lower returns.
In my personal financial planning, I have applied TVM concepts when making decisions about long-term savings and investments. For example, I have used an online investment calculator to determine the future value of monthly contributions, taking into account the current interest rate. In the future, I plan to apply TVM principles to assess the viability of investment opportunities and savings goals.
References
Brigham, E. F., & Ehrhardt, M. C. (2020). Financial management: Theory & practice (16th ed.). Cengage Learning.
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