REQUIREMENTS: WEEK 1 BUSINESS FINANCE

Activity 1.
1. Why do we need to study finance as part of our daily activities? Explain your
answer
Though we are unaware of it, finance is a part of our daily lives. For example, setting
a budget for groceries, determining how much to spend, save, or invest, and even
situations where we borrow money are all examples of how we use finance in our
daily lives. Knowing the concept of finance can help us understand why studying it is
important. In general, financial activities are those that support the existence of
individuals, businesses, and governments. These activities include investing, saving,
borrowing, and banking. Finance may also be defined as the study of money and
other financial instruments that are a part of a country's financial system. Given that
finance is an essential component of daily life, whether you are a worker or a
student, you need to understand how it operates in order to make decisions that will
not leave you with regrets but will instead help you advance and progress in your
career. As a student and a worker myself I believe that my cash flow can be
improved by using personal finance. It is possible for me to improve my cash flow by
monitoring my spending . Through finance literacy I can avoid wasting my hard-
earned money on unneeded things by budgeting carefully and making wise spending
decisions.

2. What do we mean by Time Value of Money? Explain by citing examples.

The idea of the Time value of money (TVM) holds that a quantity of money is worth
more now than it will be at a later time because of its potential for earnings in the
future. A foundational idea in finance is the time value of money. Time value of money is
significant since it aids investors and those preparing for retirement in figuring out how
to maximize their financial resources. This essential idea of money management pertains
to your savings, investments, and purchasing power. Example of time value of money is
that If you win a cash prize in a raffle for 20,000, you have the choice of receiving it in a
single payment now or over the course of a year or two. If you select the first choice,
you can invest that money and earn at least 22,000 over the next two years. On the
other hand, if you decide to go in a different direction, the amount will remain at 20,000
even after two years. Another example is At the end of a year, you would have 505 if you
invested 500 at a 5% interest rate .So, based on this illustration, 500 today will be worth
505 in a year. Interest rate is one factor that affects the time value of money.