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DISCOUNTED
TECHNIQUE OF TIME
VALUE OF MONEY
Presented by-
Karan Verma
167521
Concepts and Methodologies BBM-407
PRESENTATION
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
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.
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)
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
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
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
EXAMPLES
Graphical representation
References
• www.wikipedia.com
• www.investopedia.com
• Class notes
• www.financetrainingcourse.com
• www.study.com

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Discounting techniques of Time value of money

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