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Valuing Money

Bible has directly and indirectly talked about wealth, money, andits value. Money in the present time has more value than the money inthe future time. The prevailing interest rate gives the difference invalue. The rate determines the amount of returns that the money inthe future would produce if invested in an alternative option. Bibleexpressly discourages charging interest to one another in Exodus22:25 and Deuteronomy 23:19. In order to get the present value of thefuture money, a lump sum amount is discounted using the prevailinginterest rate (McGraw, Shafer &amp Todorov, 2010). The interest ratetakes into consideration the economic performance and futureuncertainties. Bonds are valued by taking into consideration theirmaturity value and the expected cash flow in the future (Brealey,Myers &amp Marcus, 2012). When valuing the bonds, the maturity lumpsum value is discounted using the prevailing interest rate for thebond period. The discounted amount is then added to the discountedvalue expected future cash flows. The total value gives the price ofthe bond.

Proverbs 13:11 states that gathering money little by little willmake it grow. On the same note, value of bond and money is taken asfuture cash flow’s present value. The net present value is taken asthe present value of all the future flows. The cash flow includesboth the cash inflows and the cash outflows. The stocks are valuedusing the same concept of discounting the future value. Dividends arecompounded using the discount rate that is adjusted for risk. Thevalue is added to the company’s earnings which are multiplied withthe constant growth rate of the company’s share and discounted withthe risk-adjusted rate of the company (Davidson, 2012). If thecompany’s stock grows, the share value of the stock is equated toits dividends discounted for the risk-adjusted rate. The concept ofvaluing money and money related investments is based on theuncertainties in the future.

References

Brealey, R., Myers, S. &amp Marcus, A. (2012). Fundamentals ofcorporate finance. New York: McGraw-Hill/Irwin.

Davidson, P. (2012). Money and the real world. The EconomicJournal 3(7), 101-115.

McGraw, A. P., Shafir, E., &amp Todorov, A. (2010). Valuing moneyand things: Why a 20 item can be worth more and less than 20.Management Science 56(5), 816-830.