As the name suggests it implies money valued with reference to time which may be present or future. “Time” allows the prospect to earn interest and defer consumption. Present Value (PV) – it means the current value of money in future measured at a particular interest rate. Future Value (FV) – it means the value of present money at some point of time in future measured at a particular interest rate. The value of dollar is more as of today than in future. This is due to the following reasons: •Risk/Uncertainty about the receipt of money in future

•Preference for current consumption.
•Present money offers investment opportunities to earn additional cash flows. Example – If you offer someone $5000 today or $5000 after a year, he would prefer $5000 today as that money can then be invested and one can earn interest on it. •At the time of inflation, the value of dollar as of date represents more purchasing power than the value of dollar after an year. Concept of Time Value of Money.

1.FV of a single cash flow.
2.FV of periodic cash flows.
3.PV of a single cash flow.
4.PV of a periodic cash flows.
1.FV of single cash flow equals the principal amount invested plus interest component. Interest can be in the form of compounded interest (C.I) or simple interest (S.I). Formula:
FVn = PV (1+i)n

where
FVn = future value
PV = present value
I = interest rate
N= time period
For Example: What will be the FV of $2000 I deposit today at 5% compound interest after a period of 4 years? FV4= 2000 (1+ 0.05) 4
= $2431.01
2.Series of equal cash flows in regular intervals is known as an Annuity. An example of the same would be premium paid for a LIP. Formula:
FVAn = A[(1+i)n-1/i]

where,
FVAn = future value of series of cash flows
A = series of constant cash flow
I = interest rate
N = time period
3.PV of single cash flow equals the current discounted value of the cash flow. Formula:
PV0 = FVn[1/(1+i)]n
where,
PV =...

...TIMEVALUE OF MONEYTimevalue of money is useful in making informed business decisions. For example the "net present value method" can be used to help decide the best alternative among multiple alternative uses of a firm or personal financial resources. By discounting various alternatives to their "present value" one can compare the alternatives. Time...

...Introduction
The timevalue of money is an important concept in financial management. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities. The timevalue of money can be defined as the value of money received today instead of in the future. This is based on the premise that cash in hand today is more...

...4385287
5.1 Money has a timevalue because a dollar in hand today is worth more than a dollar to be received in the future. This makes sense because if we had the dollar today, we could buy something with it or invest it and earn interest.
5.5 Compounding is the process by which interest earned on an investment is reinvested so that in future periods, interest is earned on the interest previously earned as well as the principal....

...TimeValue of MoneyTimevalue of money is an amount of money available today can be safely invested to accumulate to a larger amount in the future.
Present value- an amount of money available today.
Future amount-amount receivable/payable at a future date
Relationship Between Present Values and Present Values
The difference...

...TimeValue of Money (TVM), developed by Leonardo Fibonacci in 1202, is an important concept in financial management. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities.
TVM is based on the concept that a dollar today is worth more than a dollar in the future. That is mainly because money held today can be invested and earn interest.
A key concept...

...
TIMEVALUE OF MONEY (CHAPTER 4)
1. Future value (FV), the value of a present amount at a future date, is calculated by applying compound interest over a specific time period. Present value (PV), represents the dollar value today of a future amount, or the amount you would invest today at a given interest rate for a specified time period to equal the future amount....

...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...

...TIMEVALUETimeValue
• Interest Rates
• Compounding • Discounting
• Effective Rates
• Annuities • Perpetuities
2
Interest Rates
• Types
– Bank rate vs. Prime rate – Mortgage rates – Deposit, Loan, Credit rates
• Movement
– Demand / Supply – Inflation/ Deflation – Government intervention
3
Main Components
1. Real 2. Inflation
3. Risk
*Note:
- Risk Free (Rf) = Real + Inflation - Nominal = Rf + Risk...

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