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• They say, 'Time is money,'

• but what does one really have to do with the other?

• Meet Sheila!

• She just got her first big bonus.

• Sheila knows exactly what she wants to do with that money.

• She's had her eye on a nice convertible for a while now.

• Yes, Sheila, that's a nice car!

• Oh, looks like Sheila is a little short.

• But wait!

• She has an idea.

• Sheila is a smart cookie.

• She knows that if she deposits the money for a year

• she will earn interest.

• Then she'll be able to afford the car.

• Sheila knows that the value of her deposit one year from now

• will equal the money deposited today plus the interest earned.

• We call Sheila's money deposited today

• the present value of money.

• And the value of Sheila's deposit next year

• is the future value of money.

• What connects one to the other?

• The interest rate,

• also known as the time value of money.

• Now, with a little bit of rearranging,

• we can figure out the future value of Sheila's money

• with this equation.

• So in a year, the future value will be \$11,000.

• Well, it's been a year!

• And there's Sheila, with enough money to buy the car.

• Sheila really understands the future value of money.

• Now, I just hope she understands the speed limit!

• Now, meet Timmy.

• He's also gotten his bonus.

• The money seems to be burning a hole in his pocket.

• Yes, Timmy, that's a nice car that will surely impress people.

• Oh! Looks like you're a little short.

• Maybe you can follow Sheila's example.

• You see, Timmy, just like Sheila,

• after the first year, you'll have \$11,000.

• But Timmy, that is still not enough to buy that fancy car.

• Why don't you leave the money deposited for another year?

• Let's see how your deposit will be doing in two years.

• With a little bit of rearranging,

• it becomes the value of your money next year,

• times one plus the interest rate.

• We can then convert the future value one year from now

• to the present value times one plus the interest rate.

• We can even simplify this further

• by just squaring the value of one plus the interest rate.

• Sorry, Timmy, you'll have more money after two years,

• but you still can't afford the car!

• I don't know how many more years you'll have to wait,

• but I can tell you one way we can figure it out.

• Do you see that little number two in the equation?

• Any number that you put in there

• is the number of years that you are waiting,

• also known as the period.

• Sure, Timmy, we can see how much you'll have in five years.

• Let's connect future value and present value across five years.

• Let's watch the period increase from two to five.

• After 5 years, you'll have \$16,105.10.

• Sorry, Timmy, you have to wait a little longer.

• 10 years?

• Yeah! Let's see if you'll be able to buy the car then.

• Not quite.

• Well, Timmy, it looks like you'll need 26 years to afford this car.

• You should ask Sheila for a ride to the beach.

• Maybe a bicycle will suit you better?

• I hear the bus is pretty cheap!

They say, 'Time is money,'

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A2 TED-Ed sheila timmy interest rate interest deposited

# 【TED-Ed】The time value of money - German Nande

• 1987 185
稲葉白兎 posted on 2014/11/30
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