Chapter 6 – Time Value of Money Concepts

Time Value of Money (TVM) is one of the most fundamental concepts of Financial Management.  Unfortunately, it tends to cause a lot of confusion among students.

There are several reasons for this confusion.  First, TVM deals with mathematics, and some students have problems with mathematical concepts.  Second, students sometimes try to solve TVM problems in the abstract as opposed to “drawing” a picture of the different TVM components.  Third, some students use a calculator to solve TVM problems without really understanding the significance of what they are punching in to the calculator.  Whatever the reason, getting past the confusion with TVM can significantly increase a student’s mastery of the subject area.

In this series of presentations, I will be focusing on the different components of TVM.  First, I will start with terminology.  Next I will look at future value of a single sum, followed by present value of a single sum.  Finally, I will deal with TVM situations involving annuities.  Specifically, I will deal with future value of an annuity, and conclude with present value of an annuity.

So, let’s get started by clicking here.