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Time Value of Money – Fundamentals

Executive summary

The concept of the Time Value of Money (TVM) is that money has a value today (its Prevent Value or PV) that can be invested at a given interest rate to derive a higher Future Value (FV). For value comparisons, FV can be discounted to a PV equivalent. PV can be compounded to find its FV.

Key learning objectives:

  • What is the Time Value of Money?
  • What is the equation used to calculate TVM?

What is the Time Value of Money?

The time value of money (TVM) is arguably the most important concept in business and finance and is fundamental to understanding value, the profitability of investments and the value of financial assets. The concept of TVM is that money has a value today (its Prevent Value or PV) that can be invested at a given interest rate (i.e. compounded) to derive a higher Future Value (FV). For comparisons, FV can be discounted to a PV equivalent. PV can be compounded to find FV, using a simple formula.

What is the equation used to calculate TVM?

FV = PV x (1+rp)periods(n)
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