Formulas - Time Value of Money

What is the formula for Future Value (FV)?

• FV = PV / (1 + r)^n

• FV = PV * (1 + r)^n

• FV = PV - (r * n)

• FV = PV + r * n

How do you calculate Present Value (PV)?

• PV = FV / (1 + r)^n

• PV = FV * (1 + r)^n

• PV = FV / (r + n)

• PV = FV + (r * n)

What does the term 'discount rate' refer to in TVM?

• The interest rate used to calculate the present value of future cash flows.

• The rate at which future cash flows are guaranteed to grow.

• The rate used to calculate the future value of present cash flows.

• The total amount of cash flows expected in the future.

What is the formula for calculating the number of periods (n)?

• n = FV - PV / r

• n = log(FV / PV) / log(1 + r)

• n = PV * (1 + r)^FV

• n = PV + FV / r

How do you find the Present Value of an annuity?

• PV = Pmt × [(1 - (1 + r)^-n) / r]

• PV = Pmt + (r × n)

• PV = Pmt / (1 + r)^n

• PV = Pmt × (r / (1 - (1 + r)^n))

What is the difference between ordinary annuity and annuity due?

• An ordinary annuity is a type of investment, while an annuity due is a type of loan.

• Both ordinary annuity and annuity due pay at the same time during the period.

• The main difference is the timing of payments: ordinary annuity pays at the end of the period, annuity due pays at the beginning.

• An ordinary annuity pays at the beginning of the period, while an annuity due pays at the end.

How is the Effective Annual Rate (EAR) calculated?

• EAR = nominal rate / n

• EAR = (1 + (nominal rate / n))^n - 1

• EAR = (nominal rate + n) / n

• EAR = (1 + nominal rate)^n

What is the formula for calculating the Future Value of an annuity?

• FV = P * [(1 + r)^n - 1] / r

• FV = P * (r^n) / (1 + r)

• FV = P * (1 + r)^n + r

• FV = P * [1 - (1 + r)^-n] / r

How do you adjust the interest rate for compounding periods?

• Multiply the annual interest rate by the number of compounding periods.

• Divide the annual interest rate by the number of compounding periods.

• Add the number of compounding periods to the annual interest rate.

• Use the annual interest rate as is without any adjustments.

What is the significance of the time period in TVM calculations?

• The time period only affects the initial investment amount.

• The time period affects the compounding of interest and the valuation of cash flows.

• The time period has no impact on interest rates.

• The time period is irrelevant to cash flow analysis.