Essay on value of time

In the first year, we doubled our money, or earned a +100% rate of interest. In the second year, we lost half of our money, or earned a –50% rate of return. When individual growth rates are added up and divided by the number of years, we obtain what is called an arithmetic average. In this example, it implies that we earned, on average, a 25% rate of return. It is obvious that we did not. In fact, we averaged a zero rate of return since we ended up with the same amount of money that we started with. This does not occur when Present Value/Future Value factors are employed.

Essay on value of time

essay on value of time

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