TIME VALUE OF MONEY

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TIME VALUE OF MONEY

  1. 1. WELCOME U ALL WELCOME U ALL WELCOME U ALL
  2. 2. Time value of money • Thetime value of money isthevalueof money with agiven amount of interest earned or inflation accrued over agiven amount of time. • Theultimateprinciplesuggeststhat acertain amount of money today hasdifferent buying power than the sameamount of money in thefuture. Thisnotion existsboth becausethereisan opportunity to earn interest on themoney and becauseinflation will drive pricesup, thuschanging the"value" of themoney. Thetimevalueof money isthecentral concept in finance theory.
  3. 3. TIME VALUE OF MONEYTIME VALUE OF MONEY A B10000 loan One Year Market value of interest 10% Reasons 1. More purchasing power 2. An investor can profitably invest which make him to give a higher value Reasons 1. More purchasing power 2. An investor can profitably invest which make him to give a higher value
  4. 4. TIME VALUE OF MONEYTIME VALUE OF MONEY Compounding value concept (Future value of present money) Discounting or Present value concept (Present value of future money)
  5. 5. A=P(1+i)n A=Amt @ the period of end P=Amt @ the beginning n=No:of years i=Interest

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