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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 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.
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