Time Value of Money (TVM) – Ultimate
Cheat Sheet
1. The Core Concept (Definition)
Money available today is worth more than the same amount in the future due to its
earning capacity (interest).
• Formula: FV = PV \times (1 + r)^n
2. Key Variables (The Glossary)
• PV (Present Value): What money is worth right now.
• FV (Future Value): What money will be worth after a certain time at a specific
interest rate.
• r (Interest Rate): The rate of return/growth per period.
• n (Number of Periods): Time duration (years, months, etc.).
3. The Two Main Calculations
• Compounding (Finding Future Value): Calculating how much an investment
grows over time.
• Logic: Multiply your money by the interest factor repeatedly.
• Discounting (Finding Present Value): Calculating what a future cash amount is
worth today.
• Formula: PV = FV / (1 + r)^n
4. Why TVM Matters (Real-World Application)
• Capital Budgeting: Deciding if a long-term project is profitable.
• Loan Amortization: Calculating monthly payments for houses or cars.
Cheat Sheet
1. The Core Concept (Definition)
Money available today is worth more than the same amount in the future due to its
earning capacity (interest).
• Formula: FV = PV \times (1 + r)^n
2. Key Variables (The Glossary)
• PV (Present Value): What money is worth right now.
• FV (Future Value): What money will be worth after a certain time at a specific
interest rate.
• r (Interest Rate): The rate of return/growth per period.
• n (Number of Periods): Time duration (years, months, etc.).
3. The Two Main Calculations
• Compounding (Finding Future Value): Calculating how much an investment
grows over time.
• Logic: Multiply your money by the interest factor repeatedly.
• Discounting (Finding Present Value): Calculating what a future cash amount is
worth today.
• Formula: PV = FV / (1 + r)^n
4. Why TVM Matters (Real-World Application)
• Capital Budgeting: Deciding if a long-term project is profitable.
• Loan Amortization: Calculating monthly payments for houses or cars.
