JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY

KAKINADA

SCHOOL OF MANAGEMENT STUDIES

FINANCIAL MANAGEMENT
TECHNIQUES OF TIME VALUE OF MONEY
Presented by
E V S S G GANESH
19021E0063
 DEFINITION
• Time value of money is the value which is earned over a given
amount of time in terms of interest. For example if Rs. 200
money will be invested for about 1 year then the earning will be
of 5% interest which will be worth 205 after one year. So using
this time value of money terminology the future value can be
predicted.
 COMPONENTS OF TVM
1.Interest/Discount Rate (i)– It’s the rate of discounting or compounding that
we apply to an amount of money to calculate its present or future value.
2. Time Periods (n) – It refers to the whole number of time periods for which
we want to calculate the present or future value of a sum. These time periods
can be annually, semi-annually, quarterly, monthly, weekly etc.
3. Present value (PV)– The amount of money that we obtain by applying a
discounting rate on the future value of any cash flow.
4. Future value (FV)– The amount of money that we obtain by applying a
compounding rate on the present value of any cash flow.
5. Installments (PMT)– Installments represent payments to be paid
periodically or received during each period.
 TECHNIQUES
• Present Value (PV)The present value is known as the current value of
a sum of money that we will receive in the future.. It is given by the
following formula –PV = FV / (1 + i)^n Here, we require three things
to calculate the present value –
• 1. What is the value of the sum we will receive in the future? (FV);
2.What is the rate of discounting at which the purchasing power of the
money will fall? (i)
• 3. After how many years will we receive the concerned sum of
money?
 TECHNIQUES
• Future Value (FV)As the name goes, the FV denotes the value of a
sum of money at some date in the future. This calculation is useful for
investors and businesses who want to know the future value of their
potential investments to make a good investment decision. The
formula for FV is given by –FV = PV (1+i)n This formula requires
only three things to give us a future value.
• 1.What amount of money do we have right now? (PV)
• 2.What is the assumed interest rate at which it will grow?
• 3.After how many years will we need the money? (n)
THANK YOU