Module I: Time Value of Money
Understanding Time Value of Money
● The Time Value of Money (TVM) concept states that money available today is worth
more than the same amount in the future due to its potential earning capacity.
● Key calculations include future value (FV) and present value (PV), which are
essential for investment decisions.
Interest Rate Calculations
● Interest rates can be classified into simple and compound interest, each affecting the
value of money differently.
● Simple interest is calculated only on the principal amount, while compound interest is
calculated on the principal plus any interest earned.
Cash Flow Timelines
● A cash flow timeline visually represents the timing of cash inflows and outflows,
aiding in financial decision-making.
● Positive cash flows (inflows) are represented as positive values, while negative cash
flows (outflows) are indicated with a minus sign.
Opportunity Cost in Finance
● Opportunity cost refers to the potential benefits lost when choosing one alternative
over another, crucial for financial decision-making.
● The opportunity cost of money is often represented by the interest rate that could
have been earned if the money was invested.
Personal and Corporate Finance
Personal Finance Overview
● Personal finance involves managing individual finances, including budgeting, saving,
investing, and planning for retirement.
● Key goals include achieving financial stability, funding education, and ensuring a
comfortable retirement.
Corporate Finance Fundamentals
● Corporate finance focuses on maximizing shareholder value through strategic
investment, financing, and dividend decisions.
Understanding Time Value of Money
● The Time Value of Money (TVM) concept states that money available today is worth
more than the same amount in the future due to its potential earning capacity.
● Key calculations include future value (FV) and present value (PV), which are
essential for investment decisions.
Interest Rate Calculations
● Interest rates can be classified into simple and compound interest, each affecting the
value of money differently.
● Simple interest is calculated only on the principal amount, while compound interest is
calculated on the principal plus any interest earned.
Cash Flow Timelines
● A cash flow timeline visually represents the timing of cash inflows and outflows,
aiding in financial decision-making.
● Positive cash flows (inflows) are represented as positive values, while negative cash
flows (outflows) are indicated with a minus sign.
Opportunity Cost in Finance
● Opportunity cost refers to the potential benefits lost when choosing one alternative
over another, crucial for financial decision-making.
● The opportunity cost of money is often represented by the interest rate that could
have been earned if the money was invested.
Personal and Corporate Finance
Personal Finance Overview
● Personal finance involves managing individual finances, including budgeting, saving,
investing, and planning for retirement.
● Key goals include achieving financial stability, funding education, and ensuring a
comfortable retirement.
Corporate Finance Fundamentals
● Corporate finance focuses on maximizing shareholder value through strategic
investment, financing, and dividend decisions.
