MBA 702 Financial Management M2.1
Time Value of Money (TVM) - answer The value of money depends on the time of its
receipt or payment. Therefore it is why money amounts can only be compared after they
have been adjusted for time.
What are two items that time value of money depends upon? - answer Amount and
timing
Simple Interest Formula – answer I = prt (Interest = Principal X Rate X Time)
Simple interest concept - answer You earn interest on the initial deposit only
Compound interest concept - answer Earn interest on the initial deposit, and on earned
interest
Future Value Formula – answer FV=PV(1+r)^n
What do R mean and N mean in the above examples? - answerR= annual interest rate,
N=number of years until payment is received
Present value, formula - answerPV=FV/(1+r)^n
Time lines - answerShow the timing of cash flows. Tick marks occur at the end of
periods so times zero is today time one is the end of the first period or the beginning of
the second period
Present value abbreviation in financial calculator and excel - answerPV
Future value abbreviation on financial calculator and excel - answerFV
Rate of interest per. Based on the annual rate and the number of compounding periods
per year. - answerFinancial calculator-I/Y; Excel- Rate
Number of periods - answerThe total is based on the number of years and number of
times interest is compounded each year. Financial calculator - N. Excel-NPER
Regular periodic payment or withdrawal - answerPMT
How does a higher rate of interest affect the future value for a given PV and number of
years of compound? - answerGreater FV
Time Value of Money (TVM) - answer The value of money depends on the time of its
receipt or payment. Therefore it is why money amounts can only be compared after they
have been adjusted for time.
What are two items that time value of money depends upon? - answer Amount and
timing
Simple Interest Formula – answer I = prt (Interest = Principal X Rate X Time)
Simple interest concept - answer You earn interest on the initial deposit only
Compound interest concept - answer Earn interest on the initial deposit, and on earned
interest
Future Value Formula – answer FV=PV(1+r)^n
What do R mean and N mean in the above examples? - answerR= annual interest rate,
N=number of years until payment is received
Present value, formula - answerPV=FV/(1+r)^n
Time lines - answerShow the timing of cash flows. Tick marks occur at the end of
periods so times zero is today time one is the end of the first period or the beginning of
the second period
Present value abbreviation in financial calculator and excel - answerPV
Future value abbreviation on financial calculator and excel - answerFV
Rate of interest per. Based on the annual rate and the number of compounding periods
per year. - answerFinancial calculator-I/Y; Excel- Rate
Number of periods - answerThe total is based on the number of years and number of
times interest is compounded each year. Financial calculator - N. Excel-NPER
Regular periodic payment or withdrawal - answerPMT
How does a higher rate of interest affect the future value for a given PV and number of
years of compound? - answerGreater FV
