Time Value of Money
The concept of time value of money enables us to take decisions and helps in deciding which alternative is best.
Overview
Course Description
The time value of money enables to take correct decisions when current or future amounts need to be established or in deciding which alternative is best. Cumulative sums are highly sensitive to the number of compounding periods and to the rate of return used.
The mechanism that allows the amount invested (the principal) to grow more quickly over time is called compounding. In making decisions it is essential to know the present value, the future value, the discount rate for lump sums, and similar figures for annuities.
The rate at which the future value is brought back to the present is called as discount rate.
Real rates of return are those adjusted for inflation. The Internal Rate of Return also called as IRR, is the most commonly used factor to compare the return on investments that have differing inflows and outflows over the time.
At the end of this course, you will be able to understand :-
- What is compounding?
- Techniques of compounding
- What is a discount rate?
- Techniques of discounting
- Annuity