When solving time value of money problems, it can sometimes be helpful to establish a time line.
Category: Quantitative Methods
Future and Present Values of Money
calculate and interpret the future value (FV) and present value
(PV) of a single sum of money, an ordinary annuity, an annuity
due, a perpetuity (PV only), and a series of unequal cash flows;
The Time Value of Money at Different Compounding Frequencies
The frequency of compounding can have a considerable effect on the ending value for an investor.
The Effective Annual Interest Rate
The more frequently a given rate is compounded, the higher the ending value for the investor.
Interest Rates as Compensation for Risk
In aggregate, interest rates are set by supply and demand in the markets. In this context, r can be viewed as a real, risk-free interest rate plus compensation for four specific risks.
Interpreting Interest Rates
An interest rate (r) is the rate of return that equates the value of different cash flows on different dates.
The Time Value of Money
“The Time Value of Money” is a reading in the Level I curriculum for the CFA Program. It covers the following learning outcomes.