Time value of money

Nota:

• Refers to the fact that money on hand today is generally worth more than the same amount money given tomorrow

1. Future Value and Compounding

   Nota:

   • Future Value refers to the amount of money an investment will grow to after a certain period of time at a given Interest Rate
   1. Compounding

      Nota:

      • Compounding refers to the process of accumulating interest on the interest of a principle; i.e. accumulating interest on an investment to get more interest over time 
   2. Types of Interest
      1. Simple Interest
      2. Compound Interest
   3. Future Value= PV(1+r)^t
2. Present Value and Discounting
   1. Present Value

      Nota:

      • The current value of future cash flows discounted at an appropriate rate
   2. Discounted Cash Flow Valuation

      Nota:

      • Calculating the present value of a future cash flow to determine its value today
      1. Discount Rate