Friday, October 13, 2006

Time value of money

The time value of money serves as the foundation for all other notions in finance. It impacts business finance, consumer finance and government finance. Time value of money results from the concept of interest.
Isn't your Rs 500 note the same after one year? No, you'll promptly say. Inflation can eat into it or interest can add to it. So there are various high sounding words like Future Value (FV), Net Present Value (NPV), And the formula is simple :
\left( FV  \right)  \ = \  PV  (1+r)^n
Fazed with this formula?  There are ready made tables giving factors where you just do the basic calculator stuff. Important thing is to understand that time value of money(TVM) is vital to your financial decisions.
I will attempt to upload an Excel sheet (should be easy with some amount of time) where you can toggle more easily with the numbers, both PV and FV !
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