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Time Value of Money

Time Value of Money

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Time Value of Money

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  1. Time Value of Money

  2. Future Value of Money • The value of an investment after it has been compounded with interest for a specific period of time • Compound Interest is a very powerful tool in making your money work for you.

  3. Ways to figure the future value of money • Future value formula Future Value = P ( 1+ I )n Where P=principle I=interest n=years • Future value Table Multiply principle times factor in table Factor based on years and interest

  4. FV of $5,000 in 5 years if interest is 5%? • Formula method • FV = Principle(1 +interest)years • FV = 5,000 (1.05)5 • FV = 5,000 (1.34) • FV = $6,400

  5. Future Value of $5000 in 5 years if interest is 5% • Table method • FV = Principle X Value from table • FV = $5000 X 1.28 = $6400

  6. FUTURE VALUE TABLE INTEREST

  7. Present Value of Money • The current value of an investment after it has been discounted • PV = Principle ( 1_____) ( 1 + interest)years • PV of $2,000 if interest is 8% and time is 5 years • PV = 2,000 (_____1____) • (1 + .08)5