This presentation includes all those techniques requires to know the present value of the future investments with formulas and graphs.

1. DISCOUNTED
TECHNIQUE OF TIME
VALUE OF MONEY
Presented by-
Karan Verma
167521
Concepts and Methodologies BBM-407
PRESENTATION

2. INTRODUCTION
The time value of money (TVM) is the concept that money
available at the present time is worth more than the
identical sum in the future due to its potential earning
capacity.
Two techniques of TVM
• Compounding/Future value Technique
• Discounting/ Present value Technique

3. DISCOUNTING TECHNIQUE
• Discounting is the process of determining present value
of a series of future cash flows.
• Present value of a future cash flow (inflow or outflow) is
the current worth of a future sum of money or stream of
cash flow given a specified rate of return.
• Present value is also called discounted value.
• Interest rate used for discounting cash flows is also called
the discount rate.

4. CONTD….
It can further be explained with reference to:
• The Present value of a single cash flow (Lump sum
amount)
• The Present value of a series of Cash Flows (Annuity)

5. BASIC ABBREVIATIONS USED
• FV = Future value of money
• PV = Present value of money
• i = interest rate
• n = number of compounding periods per year
• t = number of years

6. Present value of a single cash flow
• The following general formula can be employed :
PVn = FV/(1+r)n
• The term in brackets is the discount factor or present
value factor
OR
PVn = FV * PVIF(r,n)
• PVIF(r,n) = Present Value Interest Factor at a given rate
and specified time period

7. Present value of a series of Cash
Flows
• The computation of the present value of an annuity can
be written in the following general form
• The term within brackets is the present value factor of
an annuity
PV = A x PVAF

8. EXAMPLES

9. Graphical representation

10. References
• www.wikipedia.com
• www.investopedia.com
• Class notes
• www.financetrainingcourse.com
• www.study.com