Table of Contents
Advertisement
Time value of money (TVM)
266
The following cash flow diagram shows a loan from the
lender's point of view:
Cash flow diagrams
also specify when
payments occur rela-
tive to the compound-
ing periods.The
diagram to the right
shows lease pay-
ments at the begin-
ning of the period.
This diagram shows
deposits (PMT) into an
account at the end of
each period.
Time-value-of-money (TVM) calculations make use of the
notion that a dollar today will be worth more than a dollar
sometime in the future. A dollar today can be invested at
a certain interest rate and generate a return that the same
dollar in the future cannot. This TVM principle underlies
the notion of interest rates, compound interest, and rates
of return. There are seven TVM variables:
Variable
Description
The total number of compounding periods
N
or payments.
Finance app
Advertisement
Table of Contents
