Answer to Question #161177 in Financial Math for Vdlv

Question

using visuals/examples, explain the following: time value of money (TVM). Consider using the following resource, 

https://www.investopedia.com/terms/t/timevalueofmoney.asp

Answer 1

Solution-

The value of money received today is more than the value of same amount of money received after a certain period is called Time value of money.

TVM formula

$FV=PV×[1+(\frac{i}{n})]^{n×t}$

There-

PV= Present value of money.

FV= Future value of money.

i= interest rate.

n= no. of compounding periods per year.

t= no. of year.

For example - PV=100 , i=8% , n=2 year, t= 10 year ,FV =?

$FV = 100×[1+(\frac{8}{100×2})]^{2×10}$

FV = 219.11