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…
In the previous sections, we have seen how to calculate present values and future values of lump sum cash flows. However, in many cases you may need to solve for the number of periods or the interest rate. The purpose of this section is to show exactly how to do that. It is important to remember that we are using…
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 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…