Basics of Time Value & Money

1. Time Value for Money
AVTAR SINGH
ASSISTANT PROFESSOR

2. Contents
 Definition of Time value of money
 Why Time is important
 Notations
 Formulas
 Numerical/Examples
 Benefits of Time Value and money

3. Introduction
 Time Value of Money is nothing but the premise which the
investors prefers to receive a payment of a fixed amount of
money today, rather than an equal amount in future.

4. Examples
 What would you like to go with ---Rs10000 today or Rs10000 in 5 years.
 Money received sooner rather than later allows one to use the funds for investment
and consumption purpose.
 It is better to have Rs10000 today and hence simply think as per the concept of
time value for money.

5. Importance of Time Factor
 Why time is/should be an important element/topic in your decision making?
 Time allows one the opportunity to postpone consumption and earn interest.

6. Calculations based on the time value of
Money
 Present Value(PV) of an amount that will be received in the future.
 Future Value(FV) of an amount invested(such as in deposit account) now at given
rate of interest(say 10%).
 Present Value of an annuity.
 Future Value of an Annuity.

7. Notation
 PV(present Value) is the value at time=‘o’
 FV(Future Value) is the value at time=‘n’
 ‘r’ is the rate at which the amount will be compounded each period.
 ‘n’ is number of years/periods

8. Notations
 PV(A) is the value of annuity at Time=‘o’
 FV(A) is the value of annuity at Time= n
 ‘A’ is the value of the individual payments in each compounding period.

9. Some of the formulas
Present Value of a future sum/future value of a present sum.
PV=FV/ (1+r)

14. Benefits of the knowledge of the Time
value of money
 Investment Analysis; To decide/make decisions on the financial benefits of the
project.
 To compare investment alternatives.
 To analyze how time impacts the business activities such as loans, mortgages,
leases, savings and annuities.

15. THANK YOU