WHAT'S NEW?

FINANCIAL MARKET PROGRAMMES

<

>

Available on iPad and Android tablets as well as desktop

Time Value of Money

In financial markets, there are many examples of cash flows that occur at some point in the future but which need to be evaluated today. A cash flow in the future has a value today called the present value. Similarly, a cash flow today has a value in the future known as the future value. Present value and future value are determined by the interest rate and the time period elapsed. They are crucial concepts in finance. For example, the price of a bond is the sum of the present value of all the cash flows expected to be generated by the bond in the future, the mark-to-market value of an interest swap is the sum of the present values of all the cash inflows and outflows from the swap in the future, and the value of an option is the present value of the expected payoff of the option at the exercise date.

This course describes the concepts of present value and future value, and the relationship between them. It is essential for understanding the way in which securities and derivatives are priced, and how decisions are made in financial markets.

OBJECTIVES

On completion of this course, you will be able to:

• Calculate the future value of an investment for a given present value and a given interest rate

• Recognize the relationship between the present value, future value, and discount factor

• Calculate the value of a perpetuity and an annuity

• Use the present value and future value formulas to solve for an unknown rate or number of periods, and distinguish between nominal and real interest rates

COURSE OUTLINE

Topic 1: Future Value

• Future Value & Time Value of Money

• Future Value – Example

• Future Value – Simple vs. Compound Interest

• Future Value – A Historical Example

Topic 2: Present Value

• Calculating Present Value from Future Value

• Present Value – Continuous Compounding

• Present Value – Continuous Compounding – Example

• Present Value of Multiple Cash Flows

o Example 1

o Example 2

Topic 3: Perpetuities & Annuities

• Definition of an Annuity & a Perpetuity

• Valuing Perpetuities

• Valuing Perpetuities - Another Example

• Valuing Annuities

• Valuing Annuities – Example

• Annuities – Calculating Future Value

• Relationship between Perpetuities & Annuities

• Relationship between Perpetuities & Annuities – Example

Topic 4: Present Value & Future Value – Other Considerations

• Solving for the Interest Rate and the Number of Periods

• Solving for the Rate

• Solving for the Number of Periods

PREREQUISITE KNOWLEDGE

Interest Calculations - View Now

ESTIMATED COMPLETED TIME

60 Minutes

Next Course

NPV & IRR

The purpose of this course is to provide a framework for analyzing alternative investments. Using the fundamental concepts of present value and discounting, it is possible to evaluate most kinds of financial assets and liabilities in the common framework of net present value, or NPV.

VIEW COURSE

Support

Accreditations

General: info@intuition.com

Accounts: ar@intuition.com

http://support.intuition.com

Intuition engages with over 30 accreditation bodies to ensure Know-How can be used for CPE credits. If your organization needs CPE from a body not listed below, contact us and we will endeavour to have them included.

© Copyright 2016 by Intuition. All Rights Reserved.