Time Value of Money is the value of money changes with the change of time. For example, the time value of Taka 100 today is not same as Taka 100 after one year.
How the Time Value of Money is calculated:
Formula A (to calculate future value): FV= PV(1+i)^n
Where, FV= Future Value, PV= Present Value, i= Interest rate, n= Number of Years.
Example 1:
Formula B (to calculate present value): PV= FV/(1+i)^n
Where, PV= Present Value, FV= Future Value, i= Interest rate, n= Number of Years.
Example 2:
Formula C (to calculate future value, considering compounding): FV= PV(1+i/m)^nm
Where, FV= Future Value, PV= Present Value, i= Interest rate, n= Number of Years, m= Number of compounding per year.
Example 4:
Formula D (to calculate present value, considering compounding): PV= FV/(1+i/m)^nm
Where, PV= Present Value, FV= Future Value, i= Interest rate, n= Number of Years, m= Number of compounding per year.
Formula E (to calculate effective annual rate): EAR= {(1+i/m)^m}-1
Where, EAR= Effective Annual Rate, i= Interest rate, m= Number of compounding per year.
