When solving time value of money problems, it can sometimes be helpful to establish a time line.
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 frequency of compounding can have a considerable effect on the ending value for an investor.
The more frequently a given rate is compounded, the higher the ending value for the investor.
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.
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” is a reading in the Level I curriculum for the CFA Program. It covers the following learning outcomes.