Management 1 (Organizational Behaviour/Finance & Accounting) | 24. Time Value of Money by Abraham | Learn Smarter
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24. Time Value of Money

Understanding the Time Value of Money (TVM) is essential in finance, stating that money today is worth more than the same amount in the future due to potential earnings. Key concepts include simple and compound interest, present and future values, annuities, and their applications in business financing decisions. These principles help evaluate financial feasibility in various contexts, particularly for technology professionals entering the corporate landscape.

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Sections

  • 24

    Time Value Of Money

    The Time Value of Money (TVM) is a core financial principle stating that money available today has a greater value than the same amount in the future due to its earning potential.

    Learning Practice

  • 24.1

    Concept Of Time Value Of Money

    The Time Value of Money (TVM) principle indicates that money available today is worth more than the same amount in the future due to its potential earning capacity.

    Learning Practice

  • 24.2

    Components Influencing Tvm

    This section identifies the key components that influence the Time Value of Money (TVM), including principal, interest rate, time period, and frequency of compounding.

    Learning Practice

  • 24.3

    Types Of Interest

    This section covers the two primary types of interest in finance: simple interest (SI) and compound interest (CI), explaining their calculations and applications.

    Learning Practice

  • 24.3.1

    Simple Interest (Si)

    Simple Interest (SI) is the interest calculated on the principal amount only, making it an essential concept in short-term financial scenarios.

    Learning Practice

  • 24.3.2

    Compound Interest (Ci)

    Compound Interest (CI) allows money to grow exponentially over time as interest is calculated on both the principal and accrued interest.

    Learning Practice

  • 24.4

    Future Value (Fv) And Present Value (Pv)

    This section defines future value (FV) and present value (PV), detailing their importance in evaluating financial decisions.

    Learning Practice

  • 24.4.1

    Future Value (Fv)

    Future Value (FV) measures the value of current money at a future date based on its earning capacity.

    Learning Practice

  • 24.4.2

    Present Value (Pv)

    Present Value (PV) calculates the current worth of money to be received in the future, accounting for a specific interest rate over time.

    Learning Practice

  • 24.5

    Annuities

    Annuities are a series of equal payments made at regular intervals, and understanding their types and calculations is crucial for effective financial management.

    Learning Practice

  • 24.5.1

    Types Of Annuities

    This section covers the various types of annuities, highlighting their characteristics and differences.

    Learning Practice

  • 24.5.2

    Present Value Of An Annuity (Pva)

    The Present Value of an Annuity (PVA) quantifies the current worth of a series of future annuity payments, discounted back to the present time.

    Learning Practice

  • 24.5.3

    Future Value Of An Annuity (Fva)

    The Future Value of an Annuity (FVA) calculates the future value of a series of equal payments made at regular intervals, factoring in a specified interest rate.

    Learning Practice

  • 24.6

    Applications Of Tvm In Business & Tech Startups

    This section explores how the Time Value of Money (TVM) principle is applied in various financial decision-making scenarios relevant to business and tech startups.

    Learning Practice

  • 24.7

    Discounted Cash Flow (Dcf) Analysis

    DCF is a valuation method that uses the Time Value of Money (TVM) to evaluate the attractiveness of an investment by calculating the net present value of expected cash flows.

    Learning Practice

  • 24.8

    Internal Rate Of Return (Irr)

    The Internal Rate of Return (IRR) is the discount rate at which the Net Present Value (NPV) of an investment becomes zero, indicating project profitability.

    Learning Practice

  • 24.9

    Continuous Compounding

    Continuous compounding allows for interest to be calculated and added to the principal an infinite number of times, leading to exponential growth.

    Learning Practice

  • 24.10

    Key Takeaways For Tech Students

    Understanding the Time Value of Money (TVM) is crucial for tech students as it bridges technical skills with essential financial literacy for effective decision-making.

    Learning Practice

References

Chapter_24_Time.pdf

Class Notes

Memorization

What we have learnt

  • The Time Value of Money is ...
  • Key factors influencing TVM...
  • Understanding types of inte...

Final Test

Revision Tests