Time Value of Money

Time Value Of Money             

"Money has the time value because we can earn interest on it if we invest it.

You Will Never Understand finance until you understand the time value of money"

For example we invest 100 dollars of today's money at interest rate 5% for a year. Then my 100 dollars of today's money will be worth 105 dollars after one year.

In time value of money, we will cover basic concepts

1)        Interest Rate            a)        Simple Interest   

b)        Compound Interest

2)        Present Value or Discounted Value   

a)        Opportunity Cost of Capital        

b)        Discount Rate or Capitalization Rate

c)        Present Value Interest Factor(PVIF)

3)        Future Value or Terminal Value                        

4)        Annuities 

a)        Ordinary Annuity     b)       Annuity Due

5)        Perpetuity                           

6)        Compounding More Than Once a Year  

a)        Nominal Interest Rate

b)        Continuous Compounding

c)        Effective Annual Interest Rate 

7)        Amortizing a loan