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What is the formula for present value in the time value of money?


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Answered 2008-11-02 04:53:57

You may also value from this link which walks through the true value of this concept: http://www.onemillionbucks.net/2008/10/time-value-of-money-not-40-year-old.html Source: Wikipedia The present value (PV) formula has four variables, each of which can be solved for: # PV is the value at time=0 # FV is the value at time=n # i is the rate at which the amount will be compounded each period # n is the number of periods (not necessarily an integer) :

The cumulative present value of future cash flows can be calculated by summing the contributions of FVt, the value of cash flow at time=t : Note that this series can be summed for a given value of n, or when n is .[2] This is a very general formula, which leads to several important special cases given below.

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13 billion US dollars in 1947 is how much in 2008 dollars?

This relates to the time value of money. In calculating this, certain considerations such as prices are factored in real life (market interest rates, inflation, tax implication, exchange rates etc). when you are attempting to the determine the value of your money/investment in a few years time, you use the compounding formula (i.e., future value of money) and vice versa, the discounting formula (present value of money).


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Present value, also known as present discounted value, is the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk. Present value calculations are widely used in business and economics to provide a means to compare cash flows at different times on a meaningful "like to like" basis.


What is value of money?

The time value of money is based on the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal. In particular, if one received the payment today, one can then earn interest on the money until that specified future date. All of the standard calculations are based on the most basic formula, the present value of a future sum, "discounted" to the present. For example, a sum of FV to be received in one year is discounted (at the appropriate rate of r) to give a sum of PV at present. Some standard calculations based on the time value of money are: : Present Value (PV) of an amount that will be received in the future. : Present Value of a Annuity (PVA) is the present value of a stream of (equally-sized) future payments, such as a mortgage. : Present Value of a Perpetuity is the value of a regular stream of payments that lasts "forever", or at least indefinitely. : Future Value (FV) of an amount invested (such as in a deposit account) now at a given rate of interest. : Future Value of an Annuity (FVA) is the future value of a stream of payments (annuity), assuming the payments are invested at a given rate of interest. The time value of money is based on the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal. In particular, if one received the payment today, one can then earn interest on the money until that specified future date. All of the standard calculations are based on the most basic formula, the present value of a future sum, "discounted" to the present. For example, a sum of FV to be received in one year is discounted (at the appropriate rate of r) to give a sum of PV at present. Some standard calculations based on the time value of money are: : Present Value (PV) of an amount that will be received in the future. : Present Value of a Annuity (PVA) is the present value of a stream of (equally-sized) future payments, such as a mortgage. : Present Value of a Perpetuity is the value of a regular stream of payments that lasts "forever", or at least indefinitely. : Future Value (FV) of an amount invested (such as in a deposit account) now at a given rate of interest. : Future Value of an Annuity (FVA) is the future value of a stream of payments (annuity), assuming the payments are invested at a given rate of interest.


What is a present value calculator used for?

According to the dictionary, a present value calculator calculates the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk.


Time is money is an example of what?

Time is money is an example of when in time money is received. The present value of money can be different from its' future value; Interest, inflation, investments and if money will even be there in the future affects the future value of the sum. Also, opportunity cost, or the benefits given up to pursue a different option, can affect how much money is made and tells that person how his or her time can be better spent to earn the most amount of money in a certain amount of time, or how much money is lost when deciding to spend that same amount of time doing something else.


The time value of money refers to?

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Why is the Time Value of money concept important to a business?

Time value of money is very important to any business especially business have more than one investment schemes. Time value of money means $100 received or earned today worth more than couple of years after. Therefore, business need to calculate time value of future cash (i.e. present value of future earning expectation) to choose best option.


Why a high discount rate gives a low present value of a cash flow?

The higher the discount rate, the more time value of money we are tacking out of original amount from the future value


What can erode the value of money over time?

Inflation can erode the value of money over time.


What does time value of money refer to?

The time value of money is the increase in, or future/prjected value of, an amount of money, due to the implied interest earned on it over a period of time.


Can Present value be added to determine the value of capital budgeting project?

As capital budgeting involve decision making which is for long term time period that's why time value of money imprecations are included while calculating capital budget and that's why present value of actual cash flows are used rather the real value of cash flows.


What are the problems involving the time value of money?

We want to know the future value of cash invested or loaned today. We want to know the present value, or today's value, of cash to be received or paid at later dates.


What effect do interest rates have on the calculation of future and present value How does the length of time affect future and present value How do these two factors correlate?

What effect do interest rates have on the calculation of future and present value, how does the length of time affect future and present value, how do these two factors correlate.


What does time is money mean?

" remember that time is money" it is saying that time has value just as money does.because


Concept of the time value of money?

Time value of money concepts dictates that amount recieved today is not equal to amount receivable at some future time and some amount sometimes interest which is the value of time involved with that money.


What variables are used in solving a time value of money problems without a periodic payment?

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according to the formula: f(t)=f(0)*at f(25)=100*a25=466.1 a25=4.661 a=1.0635 or 6.35% increase ___________________ Use the Basic Present Value Equation. Given any three parts to this equation, the fourth can always be calculated. Basic Present Value Equation: PV = FVt / (1 + r)t FVt = Future Value of given time PV = Present Value r = rate t = period of time


How does Time Value of Money determine the valuation of bonds?

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Time Value of Money is the value of money taking into account the effects of interest. For Example 100 Currency Units in the future (Future Value) at 5% interest Results in a Present Value Factor of 1/1.05= 0.95238 (After 1 Year) 0.95238/1.05= 0.90703 (After 2 Years) 0.90703/1.05= 0.86384 (After 3 Years) And so on.... Thus in order to get 100 Cu in the future you must invest 1 year = 95.24 Cu (Present Value) 2 years= 90.70 Cu (PV) 3 years= 86.38 Cu (PV) And so on...


What is the time value of money why is it important in financial management?

Time Value of Money Time Value of Money is an important concept in financial management. It is one of the important tools used in project appraisals to compare various investment alternatives, and solve problems involved in loans, mortgages, leases, savings, and annuities. A key concept behind Time Value of Money is that a single sum of money or a series of equal, evenly spaced payments or receipts promised in the future, can be converted to an equivalent value today. Conversely, you can determine the value to which a single sum or a series of future payments will grow to at some future date. The former is called Present Value of Cash Flows and the later is called Future Value of Cash Flows.


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What is the present value of 200 if the investment rate is 6 percent?

It is necessary to have a value for the time.


Disadvantages of time value of money?

The disadvantages of time value of money are not knowing the interest rates or growth projections of money. It is impossible to forecast accurately inflation rates.