Page 1 of 14
In our daily life, we have to work with money. When we start saving, planning for
retirement, or need a loan, we need more Mathematics. So, the focus in this chapter is
to learn about time value of money. Time value of money (TVM) is the idea that money
is available at the present time is worth more than the same amount in the future, due to
its potential earning capacity.
Time value of money is the difference between an amount of money in the present
and that same amount of money in the future.
Example One dollar today is worth more or less than one dollar
Tomorrow.
Failure to pay the credit card bills results in additional charge
termed.
Having money now is more valuable than having money later. This core principle of
finance holds that provided money can earn interest, any amount of money is worth
more the sooner it is received. One of the most fundamental concepts in finance is that
money has a time value attached to it. In simpler terms, it would be safe to say that a
dollar was worth more yesterday than today and a dollar today is worth more than a
dollar tomorrow.
This chapter is a practical approach to the time value of money. We fully understand
that today's technology provides multiple calculators and applications to help you derive
both present value and future value of money. If you do not take the time to
comprehend how these calculations are derived, you may make critical financial
decisions using inaccurate data (because you may not be able to recognize whether
the answers are correct or incorrect). There are five variables that you need to know:
, Page 2 of 14
1. Present value (PV or P):
This is your current starting amount. It is the money you have in your hand at the
present time, your initial investment for your future.
2. Future value (FV or F or A or C)/Maturity Value:
This is your ending amount at a point in time in the future. It should be worth more
than the present value, provided it is earning interest and growing over time.
3. The number of periods (m):
This is the timeline for your investment (or debts). It is usually measured in years, but
it could be any scale of time such as daily, weekly, monthly, quarterly, semi-
annually or yearly.
4. Interest rate (r or i):
This is the growth rate of your money over the lifetime of the investment. It is stated
in a percentage value, such as 8% or .08. Interest are two types such as
1. Simple Interest
2. Compound Interest
Simple interest: Simple interest means you only earn interest on the original
invested amount.
Compound Interest: Compounded interest means interest on interest.
Payment Amount (PMT):
These are a series of equal, evenly-spaced cash flows.
In our daily life, we have to work with money. When we start saving, planning for
retirement, or need a loan, we need more Mathematics. So, the focus in this chapter is
to learn about time value of money. Time value of money (TVM) is the idea that money
is available at the present time is worth more than the same amount in the future, due to
its potential earning capacity.
Time value of money is the difference between an amount of money in the present
and that same amount of money in the future.
Example One dollar today is worth more or less than one dollar
Tomorrow.
Failure to pay the credit card bills results in additional charge
termed.
Having money now is more valuable than having money later. This core principle of
finance holds that provided money can earn interest, any amount of money is worth
more the sooner it is received. One of the most fundamental concepts in finance is that
money has a time value attached to it. In simpler terms, it would be safe to say that a
dollar was worth more yesterday than today and a dollar today is worth more than a
dollar tomorrow.
This chapter is a practical approach to the time value of money. We fully understand
that today's technology provides multiple calculators and applications to help you derive
both present value and future value of money. If you do not take the time to
comprehend how these calculations are derived, you may make critical financial
decisions using inaccurate data (because you may not be able to recognize whether
the answers are correct or incorrect). There are five variables that you need to know:
, Page 2 of 14
1. Present value (PV or P):
This is your current starting amount. It is the money you have in your hand at the
present time, your initial investment for your future.
2. Future value (FV or F or A or C)/Maturity Value:
This is your ending amount at a point in time in the future. It should be worth more
than the present value, provided it is earning interest and growing over time.
3. The number of periods (m):
This is the timeline for your investment (or debts). It is usually measured in years, but
it could be any scale of time such as daily, weekly, monthly, quarterly, semi-
annually or yearly.
4. Interest rate (r or i):
This is the growth rate of your money over the lifetime of the investment. It is stated
in a percentage value, such as 8% or .08. Interest are two types such as
1. Simple Interest
2. Compound Interest
Simple interest: Simple interest means you only earn interest on the original
invested amount.
Compound Interest: Compounded interest means interest on interest.
Payment Amount (PMT):
These are a series of equal, evenly-spaced cash flows.
