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Quantitative MethodsModule 2 of 11

Time Value of Money in Finance

7

Concepts

7

Formulas

2

Decisions

6

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Key Concepts

7 concepts covered in this module.

Present Value (PV)

The current worth of a future cash flow discounted at the appropriate rate. Foundation of all valuation.

Future Value (FV)

The value of a current amount after earning interest over a specified period.

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Formulas

7 essential formulas for this module.

Future Value

FV = PV × (1 + r)n

Where: r = interest rate per period, n = number of periods

Present Value

PV = FV / (1 + r)n

Where: r = discount rate, n = periods

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Decision Frameworks

2 decision frameworks to guide your analysis.

Ordinary Annuity vs Annuity Due?

  • Ordinary annuity: most bonds (coupons at end of period), most loans
  • Annuity due: lease payments at start, insurance premiums
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Mind Map

Visual overview of how concepts connect in this module.

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Present Value (PV)

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Answer
The current worth of a future cash flow discounted at the appropriate rate. Foundation of all valuation.
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Statistical Measures of Asset Returns