Explain in words why a dollar has different values dependent on point in time received, and how “present valuing” or “future valuing” cash-flows corrects for these differences. Also, look at the mathematics of the “annuity” versus the “annuity due”, and explain why the annuity is 1+r more valuable. Finally, create an amortization table using your calculator (like in the notes) and explain why the amount of interest paid is decreasing, and the principle paid is increasing.

Dollar will be having different value dependent on the point in time received when we are calculating the present value because we will be trying to discount the future value of dollars at present in order to find out the present value and higher amount of time will mean that there will be a higher degree of depreciation in value because of time value of money factor.

Dollar will also have different value when we are considering the future value aspect because when we will be considering the future value of cash flows then higher amount of time will be living in to higher amount of future cash flows in order to compensate with the risk associated with the higher uncertainty due to higher time period.

Hence, it can be said that higher amount of time period will be leading into lower amount of cash flows, then it will be having an inverse relationship with the present value but it will have a direct and positive relationship with the future value calculation because it will provide with higher amount of future cash flows due to high amount of time.

Annuity of (1+r) is more valuable because it will mean that there will be lower time value of money involved and lowered discounting involved due to receipt of money quickly. it would be leading into higher amount of present values.