Time Value of Money Concepts


Some sections of this site have been temparily disabled as of 10/2/08 pending technical improvements.


Welcome.

This is the home page for my website on Time Value of Money (TVOM) concepts. This site provides reference material for understanding and applying TVOM theory. Actuaries typically refer to this material as part of the "general theory of interest rates". However, the perspective here is purely financial with an emphasis on the fundamental building blocks of quantitative investment analysis.

Outlines of Key Concepts

  • The Four Basic TVOM Formulas

  • Present Value of Single Sum - An overview of basic PV calculations with respect to a single sum.
  • Future Value of Single Sum - An overview of basic FV calculations with respect to a single sum.
  • Present Value of an Annuity - An overview of basic PV calculations with respect to an annuity, a series of periodic payments.
  • Future Value of an Annuity - An overview of basic FV calculations with respect to an annuity, a series of periodic payments.
  • Annuity Due - Timing of payments: beginning or end of the period.
  • The Miracle of Compounding - The impact of frequency and term on the effect of compounding.
  • Continuous Compounding - - Derivation of the continuous compoundinng formula.
  • Interest Rates - Factors effecting the choice of interest rate.
  • Cash Flow Diagram - How to construct a cash flow diagram to assist with solving TVOM problems.
  • Assumptions and Definitions - List of assumptions underlying TVOM calculations and basic TVOM definitions.
  • Loan Amortization - An example of amortizing a loan using an Excel spreadsheet