In this video on Time Value of Money, we look at Time value of money formula along with its examples. We see how to calculate Time value of money with different case studies.
What is Time value of Money?
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Time Value of Money concept tells us that the money today is worth more than the same amount in the future. This is because of the potential earning power of the given amount of money.
Time value of Money Formulas
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1) Future value of Single Amount
FV = PV (1+r)^n
2) Present value of a single amount
PV = FVn [1 / (1+r)^n]
3) Future value of Annuity
FVAn = A [(1+r)^n – 1] / r
4) Present value of Annuity
A = [{1 – (1/1 + r)^n} / r]
Examples of Time Value of Money
Time value of money calculations are used in Valuation Methodologies like Dividend Discount Model and Discounted Cash flow Analysis. It is also used to calculate Bank EMIs, pricing bonds etc.
You can learn more about Time value of money concept here - https://www.wallstreetmojo.com/time-value-money/

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