Podcast
Questions and Answers
The time value of money states that a peso today is equivalent to a peso in the future.
The time value of money states that a peso today is equivalent to a peso in the future.
False (B)
What are the two key concepts related to the time value of money?
What are the two key concepts related to the time value of money?
Future value and present value
Which of the following statements is NOT a benefit of understanding the time value of money in business transactions?
Which of the following statements is NOT a benefit of understanding the time value of money in business transactions?
- It aids in evaluating the profitability of projects.
- It helps in making informed investment decisions.
- It helps in determining the appropriate discount rate for future cash flows.
- It provides a framework for assessing the financial health of a company. (correct)
- It simplifies the process of comparing different investment options.
The ______ is the value of a current asset at a future date based on a projected growth rate.
The ______ is the value of a current asset at a future date based on a projected growth rate.
What does FVIF stand for in the future value formula?
What does FVIF stand for in the future value formula?
What is the formula for calculating the future value of an investment?
What is the formula for calculating the future value of an investment?
If you invest P1,000 at 10% annual interest compounded annually, what will be the future value of the investment after two years?
If you invest P1,000 at 10% annual interest compounded annually, what will be the future value of the investment after two years?
What does the term 'compounding' refer to in the context of investment?
What does the term 'compounding' refer to in the context of investment?
If an investment is compounded semi-annually, the interest is calculated twice a year.
If an investment is compounded semi-annually, the interest is calculated twice a year.
What is the future value of an investment of P20,000 at 4% annual interest compounded quarterly for two years?
What is the future value of an investment of P20,000 at 4% annual interest compounded quarterly for two years?
The present value of money concept states that a future sum of money is worth more today than it will be in the future.
The present value of money concept states that a future sum of money is worth more today than it will be in the future.
What is the key factor used in calculating the present value of an investment?
What is the key factor used in calculating the present value of an investment?
What is the formula for calculating the present value of an investment?
What is the formula for calculating the present value of an investment?
What does PVIF stand for in the present value formula?
What does PVIF stand for in the present value formula?
If you need to have P1,400,000 in two years, what is the present value of this amount if the investment earns 20% interest compounded semiannually?
If you need to have P1,400,000 in two years, what is the present value of this amount if the investment earns 20% interest compounded semiannually?
Flashcards
Time Value of Money
Time Value of Money
The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
Future Value (FV)
Future Value (FV)
The value of a current asset at a future date based on an assumed rate of growth.
Present Value (PV)
Present Value (PV)
The current worth of a future sum of money or stream of cash flows given a specified rate of return.
Future Value Formula
Future Value Formula
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PV Formula Example
PV Formula Example
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Compounding
Compounding
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Investment
Investment
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Annual Interest
Annual Interest
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Semiannual Interest
Semiannual Interest
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Projected Price
Projected Price
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Interest Rate (i)
Interest Rate (i)
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Number of Compounding Periods (n)
Number of Compounding Periods (n)
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Number of Years (t)
Number of Years (t)
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Principal Amount (PV)
Principal Amount (PV)
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Future Value Example
Future Value Example
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Study Notes
Time Value of Money
- A peso today is worth more than a peso in the future due to its potential earning capacity.
- The concept is called the time value of money.
- Current money can be invested to earn more, making it a higher value than a future amount.
Future Value
- Future value (FV) is the worth of an asset at a future date, based on an assumed rate of growth.
- Important to investors and financial planners to estimate investment returns.
Future Value Formula
- FV = PV * (1 + i)n
- PV = Present Value
- i = interest rate (per period)
- n = number of periods
Present Value
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Present value (PV) is the current value of future sums of money, given a specified rate of return.
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Calculates the amount needed today to achieve a certain future value.
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PV = FV / (1 + i)n
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