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Special Applications: Perpetuities and Annuities

Time Value of Money: Future Value, Present Value, and Interest Rates

Suppose you have the option of receiving $100 dollars today vs. $200 in five years. Which option would you choose? How would you determine which is the better deal? Some of us would rather have less money today vs. wait for more money tomorrow. However, sometimes it pays to wait. Unit 2 introduces the concept of time value of money and explains how to determine the value of money today vs. tomorrow by using finance tools to determine present and future values. Also, Unit 2 exposes the concept of interest rates and how to apply them when multiple periods are considered.

Completing this unit should take you approximately 8 hours.

  • Upon successful completion of this unit, you will be able to:
    • explain the time value of money;
    • compute present values and future values;
    • compute rates of return and know their use in making financial decisions;
    • explain when to apply a simple interest calculation versus a compound interest; and
    • calculate the future value and present value of an amount using one period and multiple periods.