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Mastering The Time Value of Money: A Comprehensive Guide by R. S. Miolla

Explore the fundamentals of time value of money, future value, present value, annuities, and more. Learn how to calculate FV and PV manually and through equations. Utilize tools like Excel and online calculators for financial computations.

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Mastering The Time Value of Money: A Comprehensive Guide by R. S. Miolla

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  1. The Time Value of Money By R. S. Miolla

  2. Agenda • Time value of money • Future value • Present value • Annuities

  3. 1) Future Value (FV) • Investing or FV • A lump sum of cash (Present Value) • Rate of return (i), % • Number of periods (n), usually years • Compounding • You compute the FV

  4. Computing FV - Manually • Given $1,000 to invest (PV) • 5% rate of return (i) • Three years (n) • Manually: FV = 1000 * 1.05 = 1050, year 1 • 1050* 1.05 = 1102.50, year 2 • 1102.50*1.05 = 1157.63 year 3

  5. Computing FV - Equation • FV = PV(1+i)^n • FV = 1000(1 +.05)^3 • FV = 1157.63

  6. 2) Present Value (PV) • Cash to be received in the future is worth how much now? • FV or amount to be received • Discount rate or i (%); inflation and loss of use • Number of years to wait (n)

  7. Computing PV - Equation • PV = FV/(1+i)^n • Example: Will receive 2,000 in 4 years • i = 7% • PV = 2000/(1+.07)^4 • PV = 2000(1.31) • PV = 1526.72

  8. Annuity • A repeating set of cash flows in different time periods. • You can compute the FV of an annuity and the PV of an annuity.

  9. Tools • Present value and future value tables • Excel • Online calculators • Financial calculators • Smart phone apps.

  10. Summary • Time value of money (cash) • Future value and present value • Computation and tools

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