Archives for Sunday, April 01, 2012

April 2012 (8)
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Time Value of Money (part 2)

Last time we discussed that money has a time component to it, that it changes value with time. We derived the basic formula for TVM ( Time Value of Money ): \[ P_N = P_0(1 + i)^N \] That is, the future value (FV) after N periods is equal to the present value (PV) multiplied by a geometric factor depending on the interest rate. Let’s explore. Suppose you went to a bank and said you wanted a $1000 loan repayable in one payment after a year. The bank offers you 6% per annum. How much would your...

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