The time value of money
A rupee today is more valuable than a rupee a year hence. Thus money has time value this is because of several reasons:-1) Individuals, in general prefer current consumption to future consumption.2) In an inflationary period, a rupee today represents a greater real purchasing power than a rupee a year hence.3) Capital can be employed productively to generate positive returns. An investment of one rupee today would grow to (1+r) a year hence (r is the rate of return earned on the investment. The process of investing money as well as reinvesting the interest earned thereon is called compounding.The future value of a compounded value of an investment after n years when the interest rate is r percent is: FVn=PV(1+r)n

In this equation (1+r)n is called the future value interest factor or simply the future value factor. The difference between compound and simple interest is Compound interest means that each interest payment is reinvested to earn further interest in future periods whereas if no interest is earned on interest the investment earns only simple interest. According to the rule of 72, the doubling period under compounding is obtained by dividing 72 by the interest rate. For example if the interest rate is 8% the doubling period is 9 years (72/8) According to the rule of 69 the doubling period is equal to 0.35 +69/interest rate.The rule of 69 is more accurate than rule of 72 though it involves more calculation. An annuity is a stream of constant cash flows (payments and receipts) occurring at regular intervals of time. The premium payments of a life insurance policy, for example are an annuity.When the cash flows occur at the end of each period, the annuity is called an ordinary annuity or a deferred annuity.When the cash flows occur at the beginning of each period, the annuity is called an annuity due. The future value of an annuity- FVAn=A(1+r)n-1+A(1+r)n-2+…..+A =A[(1+r)n-1]/r...

...Timevalue of money ("TVM") is defined as the idea that money available at the present time is worth more than the same amount in the future, due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also often referred to as "present discounted value"...

...toward understanding the relationship between the value of dollars today and that of dollars in the future is by looking at how funds invested will grow over time. This understanding will allow one to answer such questions as; how much should be invested today to produce a specified future sum of money?
TimeValue of Money
In most cases, borrowing money is not free, unless it is a fiver for...

...one of the most important concepts is the TimeValue of Money (TVM). TimeValue of Money concepts helps a manager or investors understand the benefits and the future cash flow to help justify the initial cost of the project or investment. Many of the assets businesses and individuals own are financed with money borrowed from others, so the understanding of TVM is crucial to making good buying...

...FIN2110 Finance Basics for Managers Fall 2011
TimeValue of Money Problems
Calculating Future Values
Assume you deposit $10,000 today in an account that pays 6% interest. How much will you have in five years?
= $10,000 (FVIF of 6%, 5years)
= $10,000 * 1.3382
= $13,382
Calculating Present Values
Suppose you have just celebrated your 19th birthday. A rich uncle has set up a trust fund...

...FINANCE
TIMEVALUE OF MONEY
The aim of this paper is to learn about time-value-of-money to make optimal decisions as manger must understand the relationship between a dollars present today and a dollar in the future.
Timevalue of money
Today’s financial managers often have to compare cash payments that occur on different dates. To make optimal decisions, the...

...TimeValue of Money
The timevalue of money (TVM) or, discounted present value, is one of the basic concepts of finance and was developed by Leonardo Fibonacci in 1202. The timevalue of money (TVM) is based on the premise that one will prefer to receive a certain amount of money today than the same amount in the future, all else equal. As...

...Finance21
Prof. Khen Enriquez
This article will explain the financial concept of timevalue of money. The overview provides an introduction to the principles at work when money grows in value over time. These principles include future value of money, present value of money, simple interest and compound interest. In addition, other concepts that...

...concept of the timevalue of money and the importance of this concept in business. Also, we will provide a demonstration of the use of the formula used to calculate the present and future values of money to get the present value of $100 using different periods of time and interest rates.
TimeValue of Money
In the world of business, it is essential...

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