Time Value of Money

• Time Value of Money - Businesses need a tool to determine the value of money that comes at different times.
• Time Line - used by financial managers to identify the cash flow at every given period
• Interest - a payment fee or rent for the use of money
• Simple Interest - basic finance-related computation of interest
• Formula - I = P x R x T
• Compound Interest - used by most banks and financial institutions
• Formula of CI - F = P(1 + I)N^
• Future Value of Money - the equivalent amount of money in the future of a specific present amount
• Formula FVM - FV = IV x (1+r)t^
• Annuity - a series of equal, fixed, and periodic cash flows over a period of time
• Annuity Due - if the payment or receipt occurs at the beginning of each period
• Present Value - the present amount today that is equivalent to a specific amount paid out over a period of time
• Present Value of an Annuity - the present value of future payments from an annuity