Time value of money | How Calculate Present Value of Money | How Calculate Future Value of Money. YouTube Link For Video Concept: https://www.youtube.com/watch?v=_sJiiMkHBtE

1. Time Value Of Money

2. Time Value Of Money
› A Dollar Today is worth more than the Dollar Tomorrow, this
concept is referred to as the “TIME VALUE OF MONEY”.
› The time value of money is a basic financial concept that holds
that money in the present is worth more than the same sum of
money to be received in the future. This is true because money
that you have right now can be invested and earn a return, thus
creating a larger amount of money in the future.

3. Terminology
 Present Value (PV) [Discounting]
 Future Value (FV) [Compounding]
 Number of periods (n)
 Interest Rate (i)
 Cash Flow (CF)

4. Timeline
Years
Interest % % % %
PV FV
1 2 3 4 5 6
Cash

5. Future Value (Compounding)
Future value means NOT now but after some time or
period.
Three Factors Of Future Value
Principal:
Interest:
Time periods:

6. Formula: Future Value (Compounding)
 FV = PV (1+ i)n
For example, assume a $2,000 investment is held for 1
years in a savings account with 06% simple interest paid
annually.
FV = Principal * (1 + Interest)1
FV = 2,000 * (1 +6%)1
FV = 2000* 1.06
FV = $ 2,120

7. TIMELINE
› For example, assume a $2,000 investment is held for 2nd
years in a savings account with 06% simple interest paid
annually.
FV = Principal * (1 + Interest)2
FV = 2,000 * (1 +6%)2
FV = 2000* 1.12
FV = $ 2,247
0 1 2
2000 2,120 2,247
6% 6%
For Year 2:

8. Present Value (PV) [Discounting]
Present Value is the current value of the future amount of money
computed on discount rate or required rate of return.
Discounting is the process of translating a future value or
a set of future cash flows into a present value.

9. Formula: Present Value [Discounting]
 PV = FV (1+ i)-n
Assume that you need to have exactly $4,000 saved 10 years
from now. How much must you deposit today in an account that
pays 6% interest, compounded annually, so that you reach your
goal of $4,000?
 PV = Principal * (1 + Interest)-10
PV = 4,000 * (1 +6%)-10
PV = 4000* 0.55
PV = $ 2,233

10.  Prepared By : Syed Arshan Ali Shah
 YouTube Link for Video : https://www.youtube.com/watch?v=_sJiiMkHBtE
 SYED ACADEMIC : YouTube Link
 https://www.youtube.com/channel/UCwNs6hPiS5fbYTMYBUzoVXg
Thank You 