From the course: Accounting Foundations: Making Business Decisions Using IRR and NPV
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Computing the time value of money
From the course: Accounting Foundations: Making Business Decisions Using IRR and NPV
Computing the time value of money
- So let's practice making some simple time value of money computations. I will use generic labeling that you can use with any financial calculator or with spreadsheet functions such as those found in Microsoft Excel. PV, or present value, is the amount of a cash flow. FV, or future value, is the amount of a single cash flow occurring in the future. PMT, or payment, is the amount of a regular cash flow, an annuity. I, or interest rate, is the amount of the interest rate per period. N, or number of periods, is the number of periods until a future cash flow, an FV, occurs or the number of periods that a stream of cash flows, PMT, will occur. All right, let's go. You should get a financial calculator or open a spreadsheet and see if you can duplicate these calculations. First, the future value of a single amount now. I invest $1,000 now. The interest rate is 7%. How much will be in my account after 10 years? Well, I…
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