Time Value of Money. Future Value of Money n The value of an investment after it has been compounded with interest for a specific period of time n FV.

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Time Value of Money

Future Value of Money n The value of an investment after it has been compounded with interest for a specific period of time n FV = principle (1 + interest) years n FV of $5,000 in 5 years if interest is %5? n FV = 5,000 (1.05) 5 n FV = 5,000 (1.34) n FV = $6,700

Present Value of Money n The current value of an investment after it has been discounted n PV = Principle ( 1_____) n ( 1 + interest) years n PV of $10,000 if interest is %4 and time is 4 years n PV = 10,000 (_____1____) n ( ) 4 n PV = 10,000 (.8219) = 8,219