Financial Management Presentation

By

Akula Poojitha
Sec-A
Rollno-002
Topic: Concept of
time value of money
 What is the Time value of money?

The time value of money (TVM) is the concept

that money you have how is worth more than
the identical sum in the future.

TVM is also sometimes referred to as

present discounted value.
The Concept Of Time Value Of Money:
The Time Value Of Money draws
from the idea that rational
investors prefer to receive money
in the future.
The Time Value Of Money is
based on the idea that people
would rather have money today
than in the future.
For Example:
You purchase A 1 kg silver bar for
300/- per gram 2 years ago. Today
the market rate of silver is 100/-
per gram.
It is always advisable to focus on
the current market value than to
wait for the future.
Hence, the money which is due for
the future is only on the papers and
does not add any value in the
present.
 Parameters Of TVM:
1.Inflation: It
reduces the purchasing power of
money as it raises the cost of goods or services.
2.Opportunity Cost: It is the loss associated with the
investment and the profit linked with them.
3.Risk: It
relates to the risk involved to be
undertaken.
Time Value Of Money:

1. Present value

2. Future value
Present value:
Present value determines what a cash flow
to be received in the future is worth in
today’s dollars.
Formula for determining the present
value of money is as follows,
Formula for Present Value:

FV = Future value of money

i = Rate of interest or current yield on similar
investment.
t = Number of years and
n = Number of compounding periods of interest per
year.
Future value:
Future value determines what a cash flow received
today is worth in the future, Based on interest rates or
capital gains.
Formula for determining the future value of
money is as follows,
Formula for Future Value:

PV = Present value of money

i = Rate of interest or current yield
on similar investment.
t = Number of years and
n = Number of compounding
periods of interest per year.
Points to be remember in Time Value OF Money:

The value of money stems from the belief that prudent

investors choose to earn money now rather than the
same sum of money in the future.
Since money will gain compound interest, it is more
valuable in the future.
The number of compounding times over each time
frame is also an important determinant of the time
value of the money.
THANK YOU