The Time Value of Money

Time Affects Money , How ?

Money doesn't change over time if left untouched , but it's purchasing power
does

The Value of Money

Political Factors Economic Factors

Economic Factors

Inflation

Interest Rate

Employment Rates

Currency Rates

GDP

Tip
 In our course we're only going to focus on interest rate

Interest Rate :
Why ? we pay interest because there is an opportunity cost (The right
of using the lended money)
Who decides It ? Interest Rate is Fixed by the central bank
How much ? Depending on :
Ammount Borrowed
Period
Interest rate

Interest

Interest is the compensation one gets for lending a certain asset. For
instance, suppose that you put some money on a bank account for a
year then the bank can do whatever it wants with that money for a year.
To reward you for that , it pays you some interest.

Borrower

Repay X + Interest Gives Amount X

Lender

Simple Interest
Simple Interest

Interest is the compensation one gets for lending a certain asset. For
instance, suppose that you put some money on a bank account for a
 year then the bank can do whatever it wants with that money for a year.
To reward you for that , it pays you some interest.

The asset being lent out is called The Capital , when the capital is
expressed in money it is called The Principal

Simpe Interest is the reward for lending the Capital to somebody

for a period of time.

Simple Interest ( I ) is the interest earned on capital ( C ) lent on a period ( n

) at the rate ( i ) is :

Simple Interest Formula

I = c × n × i

**Additional Notes**: | Type of Interest Rate | Formula | |-------------------------|------------

C(1+i)2 +C(1+i)2.i

=C(1+i)2(1+i)

= C(1+i)3

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