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.