Mastering Future Value and Present Value: Solving Basic Problems

💰The present value represents the value of money in the present, while the future value represents the value of money in the future.

⏳The time value of money shows that the purchasing power of money decreases over time.

📈To calculate the future value, use the formula: FV = PV * (1 + r)^n, where PV is the present value, r is the interest rate, and n is the number of time periods.

💸Calculating the present value requires rearranging the formula: PV = FV / (1 + r)^n.

🤔The value of money now is worth more than the same amount of money in the future due to inflation and the ability to invest and earn interest.

What is the time value of money?

—The time value of money refers to the idea that money available today is worth more than the same amount of money in the future due to its potential earning capacity.

How do you calculate the future value?

—To calculate the future value, use the formula: FV = PV * (1 + r)^n, where FV is the future value, PV is the present value, r is the interest rate, and n is the number of time periods.

What is the present value?

—The present value represents the value of money in the present, taking into account factors such as inflation and the opportunity cost of not investing the money.

Why does the time value of money matter?

—The time value of money is important because it helps individuals and businesses make financial decisions by considering the potential return on investment and the impact of inflation.

How does the time value of money affect purchasing power?

—The time value of money shows that the purchasing power of money decreases over time, meaning that the same amount of money can buy less in the future due to inflation and changes in the economy.

00:01Learn how to solve future value and present value problems.

00:10The present value represents the value of money in the present, while the future value represents the value of money in the future.

01:08To calculate the future value, use the formula: FV = PV * (1 + r)^n, where PV is the present value, r is the interest rate, and n is the number of time periods.

02:52Calculating the present value requires rearranging the formula: PV = FV / (1 + r)^n.

03:02The time value of money shows that the purchasing power of money decreases over time.

04:52The value of money now is worth more than the same amount of money in the future due to inflation and the ability to invest and earn interest.