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Mahesh Kumar Sarva, Lovely Professional University Unit 2: Time Value of Money

Unit 2: Time Value of Money Notes

CONTENTS
Objectives
Introduction
2.1 Future Value of Single Amount

2.2 Present Value of Single Amount
2.3 Present and Future Value of Annuities
2.3.1 Future Value of Annuity of 1
2.3.2 Present Value of Annuity of 1
2.4 Perpetuities

2.5 Calculation of the Compound Growth Rate
2.6 Summary
2.7 Keywords
2.8 Review Questions
2.9 Further Readings

Objectives

After studying this unit, you will be able to:

 Explain the time value of money of single amount;
 Identify the conception of present and future value of annuity;
 Describe the concept of perpetuity;
 Discuss various significant aspects related to growth rate calculations.

Introduction

This unit is concerned with interest rates and their effects on the value of money. Interest rates
have widespread influence over decisions made by businesses and by us in personal lives.
Corporations pay lakhs of rupees in interest each year for the use of money they have borrowed.
We earn money on sums we have invested in savings accounts, certificate of deposit, and money
market funds. We also pay for the use of money that we have borrowed for school loans, mortgages,
or credit card purchases. We will first examine the nature of interest and its computation. Then, we
will discuss several investment solutions and computations related to each.

2.1 Future Value of Single Amount

Money available at present is more valuable than money value in future.

Did u know? What is interest?
The compensation for waiting is the time value of money is called interest. Interest is a fee
that is paid for having the use of money.

LOVELY PROFESSIONAL UNIVERSITY 17