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Define The Six Functions of a Dollar in Real Estate
The Six Functions of a Dollar:
"Six Functions of a Dollar" is a concept in finance that helps us understand how money can change over time. It's like a set of tools or formulas that help us calculate different scenarios involving money, like saving, investing, or borrowing.
Example:
Let's say you have $1,000 that you want to invest. The bank offers you a 5% annual interest rate. You want to know how much money you'll have after 10 years.
So, you'd use the Future Value of $1 formula. In this case, the $1 is your initial $1,000 investment (you can think of it as 1,000 "dollars"), the interest rate is 5%, and the number of periods is 10 years.
Using the formula, you find that each of your "dollars" will grow to about $1.63 after 10 years. So, your initial $1,000 investment will grow to about $1,630.
"A Deep Dive for Real Estate Agents and Appraisers"
The six functions of a dollar are fundamental financial calculations used in finance, accounting, and economics to evaluate investments, loans, and other financial decisions. They are:
Future Value of $1 (FV): If you put a dollar in a bank account or investment that earns interest, how much will it grow to in the future?
Present Value of $1 (PV): If you will receive a dollar in the future, how much is it worth today, considering that money today can be used or invested to make more money?
Future Value of an Ordinary Annuity of $1 (FVoa): If you save a dollar every month (or other regular period) in an account that earns interest, how much will you have in total in the future?
Present Value of an Ordinary Annuity of $1 (PVoA): If you will receive a dollar every month in the future, how much is that stream of money worth today?
Future Value of an Annuity Due of $1 (FVad): This is similar to FVoa, but the dollar is saved at the beginning of each period rather than the end, so it earns a little more interest.
Present Value of an Annuity Due of $1 (PVad): This is similar to PVoA, but the dollar is received at the beginning of each period rather than the end.
These six functions of a dollar are related to the time value of money, which is the idea that a dollar today is worth more than a dollar in the future due to inflation and the opportunity to earn interest on investments. By understanding these functions, you can make informed financial decisions, such as evaluating the worth of investments, loans, and other financial transactions, taking into account the timing of cash flows and the time value of money.
"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"
In a land where dollars grow and shrink,
And money's more than you may think,
We've six functions, so let's embark,
To understand these money larks.
One, Future Value, it's a gem,
Turns one dollar into them.
Invest today, and you will see,
More dollars in your treasury.
Two, Present Value, the other side,
What's a future dollar's ride?
A dollar later, what's its worth?
Present Value will give birth.
Three, a Future Annuity,
Saving dollars, can't you see?
A dollar each period's stride,
See how much in future you'll confide.
Four, the Present's Annuity,
A dollar paid periodically,
What's this stream of future cash?
Present value in a dash.
Five, Annuity Due for future's lens,
A dollar saved at period's commence,
It's more than when it's at the end,
For it has longer to ascend.
Six, Annuity Due but present's side,
A dollar now, no need to bide,
At each period's starting date,
What's its worth? Don't hesitate.
So now you see, it's quite a feat,
How dollars move, it's really neat,
With these six functions, you're in the know,
Onward in your money's flow!