What is the time value of money?
This reading introduces the concept of the time value of money: the idea that money has earning potential, so the timing of a payment matters. Given an interest rate, readers will learn to calculate the present value of a sum to be received in the future or, alternatively, the future value of a sum invested today.
Can a financial calculator solve a common time value of money problem?
Here is an additional example of using a financial calculator to solve a common time value of money problem. You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year.
Can a financial calculator solve TVM problems?
Again, an important thing to note when using a financial calculator to solve TVM problems is that you must enter your numbers according to the cash flow sign convention discussed above.
What is the FV of the present value?
The FV of this present value has been calculated as approximately $2,433.31. We have covered the idea that present value is the opposite of future value. As an example, in the spreadsheet shown in Figure 7.3, we calculated that the future value of $100 five years from now at a 5% interest rate would be $127.63.
The Time Value of Money in Financial Management