Time value of money and financial calculator tutorials
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Time value of money and financial calculator tutorials
An annuity is a series of equal cash flows, equally distributed over time. Examples of annuities abound: Mortgage payments, car loan payments, leases, rent payments, insurance payouts, and so on. If you are paying or receiving the same amount of money every month (or week, or year, or whatever time frame), then you have an annuity. A regular annuity is…
On the previous page, you learned everything that you will ever need to know in order to solve time value of money problems! That’s quite a bold statement, but it is true. The key is that we derived the basic time value of money formula: $$F{V_N}=PV(1+i)^N$$ From that formula, we can easily derive other formulas for solving for any of…
The most basic type of cash flow is a lump sum. That is, a single cash flow that occurs at a single point in time. Despite its simplicity, the lump sum cash flow is the bedrock upon which all other types of cash flows are built. According to the principal of value additivity, every type of cash flow stream can…
One of the biggest obstacles to correctly solving time value of money problems is identifying the cash flows and their timing. On this page I will offer some tips that I hope will be helpful. There are Always Five Variables Every time value of money problem has five variables: Present value (PV), future value (FV), number of periods (N), interest…
One of the most fundamental concepts in finance is that money has a “time value.” That is to say that money in hand today is worth more than money that is expected to be received in the future. The reason is straightforward: A dollar that you receive today can be invested such that you will have more than a dollar…