Time Value of Money

 Time Value of Money 

 

We all want money and we will work hard to earn money. You can earn money how much you want but you need to do proper planning and saving.

Time Value of Money is very much important because the present Money value is not equal to money value after 10 years. Eg:- Present 10000 not equal to future 10000. In numbers it was same, but what you purchase now will not purchase in feature with the same price you purchase now.

Why Present Money Will not Equal to Future Money?

 

I know that you will get this doubt, I think you know about Interest, like that there will be an Inflation which influences the price of products you purchasing. If there is less inflation the price of the product will be less and vise versa. So to make money value equal in future, we need save money. Then Present Amount is Equal to Future Amount.

Eg: - Our Parents tell some stories like that they saw movie at the price of Rs 0.50 Paisa, but in present days we seeing Same Cinema Theater for Rs 100 and more.

Time Value of Money Formulas.

 

The following are the formulas to Calculate Time Value of Money.

Present value of a future sum
Present value of an annuity for n payment periods
Present value of a growing annuity
Present value of a perpetuity
Present value of a growing perpetuity
Future value of a present sum
Future value of an annuity
Future value of a growing annuity

Time Value of Money Formulas

PV = Present Value
FV = Future Value
i or r = Interest Rate or Rate of Interest.
m = number of compounding periods per year
n = time period expressed in years
e = Euler's constant ~ 2.71828...
EAR = Effective Annual Rate.
PMT = the periodic payment or cash flow

Time Value of Money - Excel Formulas

 

If you don't have financial calculates to know Time Value of Money, then you can use Excel Formulas to calculate in Microsoft Excel.

Time Value of Money - Excel Formulas

N = Number of Periods

Rate = Interest Rate

PV = Present Value

PMT = Payment

FV = Future Value

The above is some details about Time Value of Money

Read More Details about Time Value of Money here http://en.wikipedia.org/wiki/Time_value_of_money