
Quantitative Methods  Time Value of Money
The concept of the time value of money takes into account that a dollar received today is worth more than a dollar received in the future. Financial planners must routinely calculate the future value of investments in order to help clients plan for goals such as retirement.
Future Value
When planning an investment strategy, it is useful to be able to predict what an investment is likely to be worth in the future, taking the impact of compound interest into account. This formula allows you (or your calculator) to do just that:
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P_{n} = P_{0}(1+r)^{n}
P_{0} is the original amount invested
P_{n}is the future value of P_{0}
_{n}is the number of compounding periods (years, months, etc.)
r is the rate of interest
As the following examples illustrate, when you increase the frequency of compounding, you also increase the future value of your investment.
How much will an investment, (worth $10,000 today), be worth 10 years from now at a rate of 9%?
P_{0} = $10,000
P_{n }is the future value of P_{0}
_{n }= 10 years
r = 9%
Example 1: If interest is compounded annually, the future value (P_{n}) is $23,674.
10,000*(1.09)^{10*1 }= $23,674
Example 2: If interest is compounded monthly, the future value (P_{n}) is $24,514.
10,000*(1+(0.09/12)^{10*12} = $24,514
The same concepts can help you to calculate the amount needed today to reach the future value of a desired investment. For example, if a client wishes to retire with $1 million, it would be useful to know how much she needs to save each year to reach that goal.
You can simply reverse the future value formula to calculate the present value required:
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P_{0}_{ = }P_{n / }(1+ r)^{ n}
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Net Present Value (NPV)
Professionals
Time Value of Money
FINRA/NASAA Series 65  Time Value of Money. The section explains the concept of present and future value. 
Professionals
Future Value And Compounding
It's useful to be able to predict what an investment is likely to be worth in the future. 
Fundamental Analysis
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today. 
Professionals
Holding Period Return
FINRA/NASAA Series 65  Holding Period Return. This section explains holding period return and its calculation. 
Investing Basics
Learn Simple And Compound Interest
Interest is defined as the cost of borrowing money, and depending on how it is calculated, can be classified as simple interest or compound interest. 
Investing
The Effective Annual Interest Rate
The effective annual interest rate is a way of restating the annual interest rate so that it takes into account the effects of compounding. 
Professionals
Present Value And Discounting
It is important to know how to calculate the time value of money so that you can distinguish between the worth of investments that offer you returns at different times. 
Investing Basics
Understanding The Time Value Of Money
Find out why time really is money by learning to calculate present and future value. 
Professionals
Net Present Value (NPV)
FINRA/NASAA Series 66 Section 1  Net Present Value. This section discusses the concept of Net Present Value and its calculation. 
Forex Education
Time Value Of Money: Determining Your Future Worth
Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation.

Compound Interest
Compound Interest is interest calculated on the initial principal ... 
Discrete Compounding
Discrete compounding refers to the method by which interest is ... 
Periodic Interest Rate
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Fair Value
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Key Rate Duration
Holding all other maturities constant, this measures the sensitivity ... 
Compound Return
The rate of return, usually expressed as a percentage, that represents ...

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