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The Time Value of Money

Posted on January 21, 2021January 25, 2021 by financialeducation

“The Time Value of Money” is a reading in the Level I curriculum for the CFA Program. It covers the following learning outcomes.

a. interpret interest rates as required rates of return, discount rates,
or opportunity costs
;
b. explain an interest rate as the sum of a real risk-free rate and
premiums that compensate investors for bearing distinct types of
risk
;
c. calculate and interpret the effective annual rate, given the stated
annual interest rate and the frequency of compounding
;
d. solve time value of money problems for different frequencies of
compounding
;
e. 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;
f. demonstrate the use of a time line in modeling and solving time
value of money problems
.

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