This document provides an introduction and overview of a course on introduction to finance. It includes the course title, code, list of group members, lecturer, and covers key concepts related to time value of money including future value, present value, and calculating interest rates. The document contains examples and explanations of how to calculate future value, present value, and solving for interest rates and time periods using timelines and formulas.

1. Welcome to Our
Presentation

2. Course Title: Introduction to Finance
Course Code: FIN-230
Group Members
Sultan Islam 1201010182
Mahmudul Hasan 1201010181
Sourobh Mojumdar 1201010155
Md. Tanver Islam Chowdhury 1201010183
Monish Roy 1201010178
Mirza Ashfaqul Ambia 1201010163
Mohammed Zahed Hossain
Lecturer
Department of Business Administration
Leading University, Sylhet.

3. Time Value
of
Money

4. Look ahead
• Time value of money
• Why time is important
• Time line
• Future value
• Present value
• Solving for I
• Solving for n
• Annual compounding

5. Time Value of Money

6. Time Value Of Money
Which would you rather have Tk. 1,000 today
or Tk. 1,000 in 5 years
Obviously, Tk. 1,000 today
• Money received sooner rather than later
allows one to use the funds for investment for
consumption purposes. This concept is
referred to as the Time Value of Money.

7. Why TIME?
Why is TIME such an important element in your decision?
TIME allows you the opportunity to postpone consumption and
earn INTEREST.
NOT having the opportunity to earn interest on money is called
opportunity cost.
Opportunity cost = Alternative Use
The opportunity cost of money is the interest rate that would
be earned by investing it; t is the underlying reason for the
time value of money

8. Time Line
5
0 1 2 3 4
Cash flow : -100
5%
?
outflow
investment
Ending 1st period
Beginning 2nd period
Period today or starting period
The value we
want to find out
after 5 years or
periods

9. When Interest Rate Unequal
0 1 2 3
5% 10% 15%
- 100 FV = ?

10. Future Value
• Definition : The amount to which a cash flow
or series of cash flows will grow over a given
period of time when compounded at a given
interest rate.
• Compounding: The arithmetic process of
determining the final value of a cash flow or
series of cash flows when compound interest
is applied.

11. Future Value (Contd.)
• The process of going from today’s values
or present values, to future values is
called compounding.
• PV= present value, suppose PV=TK.100
• i=interest rate, here i=5%, expressed in
decimal 0.05

12. • INT=amount of interest, that means PV × I =
100×0.05
• FV=future value, here FV=100+5
• N=no. of years, here n=1
FV=PV+INT FV= PV(1+i)
= PV+PV(i) = 100(1+.05)
= PV(1+i) = 105
Future Value (Contd.)

13. Time Line of Finding FV
-100
Initial deposit
Interest earned 5 5.25 5.51 5.79 6.08
Amount at the end 105 110.25 115.76 121.55 127.63
of Each period
FV1=? FV2=? FV3=? FV4=? FV5=?
0 1 2 3 4 5
5%

14. Future Value (Contd.)
To mathematically define the FV at the end of
each year:
Final equation of finding FV

15. Alternative Formula of FV

16. EXAMPLE
• If you deposit TK.10,000 in a bank account
that pays 10% interest annually how much
money will be in your account after 3 years?
0 1 2 3
10%
-10,000 FV3=?

17. When Interest Rate is Unequal on FV
0 1 2 3
5% 8% 10%
-100 FV= ?

18. Present Value (PV)
• Present value: The value today of a future cash
flow or series of cash flow.
• Discounting : The process of finding the
present value of a cash flow or a series of cash
flows.
Discounting is the reverse of compounding.

19. Time Line of Finding PV
0 1 2 3 4 5
5%
PV = ? 105 110.25 115.76 121.55 127.63
100 ÷1.05 ÷1.05 ÷1.05 ÷1.05 ÷1.05

20. Example
• What is the present value of a security that
promises to pay you Tk.5000 in 20 years?
Assume that you can earn 7 percent if you
were to invest in other securities of equal risk.

21. solution
0 1 2 3 4 19 20
PV = ? FV=5000
7%

22. Solution (Contd.)
Alternative Formula of PV

23. Finding Interest Rate ( i = ?)

24. Way of finding Interest Rate (i)

25. Equation of n

27. Annual Compounding
for
3 Years at
6% Annual Interest Rate
0 1 2 3
6%
-100 ?

28. Annual Compounding (contd.)

30. Thank You