noha.pptx - TIME VALUE OF MONEY CHAPTER 5 Principle 1 Money...

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TIME VALUE OF MONEY CHAPTER 5
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Principle 1: – Money Has a Time Value The time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.
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Using Timelines to Visualize Cash flows • A timeline identifies the timing and amount of a stream of cash flows along with the interest rate. • A timeline is typically expressed in years, but it could also be expressed as months, days or any other unit of time.
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periods cash PV = 100 5% 0 1 2 3 FV = ?? PV represents 100 that is on hand today and; FV is the value that will be in the account on a future date. Each tick mark corresponds to both the end of one period and the beginning of the next one. In this example, cash flows occur only at Times 0 and 3, with no flows at times 1 or 2.
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Present Value and Future Value
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