Time Value of Money Formula Sheet

Symbols:

PV = Present value, what future cash flows are worth today

FV = Future value, what cash flows are worth in the future

r = interest rate, rate of return, or discount rate per period – typically, but not always, one year

n = number of periods – typically, but not always, the number of years

C = cash amount

 

Basic Time Value Calculations

 

  • How much will I receive in the future if I investment certain amount today? (compounding)
    • FV = PV(1 + r)n
  • How much do I have to invest today to have some amount in the future? (discounting)
    • PV = FV / (1 + r)n
  • What is the implied interest rate in an investment?
    • r= (FV / PV)1/n – 1, or
  • How to find the number of time periods?

Annuity and Perpetuity Calculations

  • Present value and future value of ordinary annuity

 

  • Present value of a Perpetuity: PV=C/r