FM ANSWERS :-

A1) Time Value of Money (TVM)

Time value of money is the difference between an amount of money in
the present and that same amount of money in the future.
Having money now is more valuable than having money later.
The present amount is called the present value, the future amount is
called the future value, and the appropriate rate that relates the two
amounts is called the discount rate.
Present Value = Future Value / (1 + Discount Rate)
Future Value = Present Value x (1 + Discount Rate)
Time Value of Money Examples
. If you invest $100 (the present value) for 1 year at a 5% interest
rate (the discount rate), then at the end of the year, you would have
$105 (the future value). So, according to this example, $100 today
is worth $105 a year from today.
$105 = $100 x 1.05

$100 = $105 / 1.05

Likewise, $100 a year from today, discounted back at 5%, is worth only

$95.24 today.
$95.24 = $100 / 1.05

To calculate the time value of money for a period longer than one

year, you simply raise the discount factor by the appropriate number
of time periods. For example, to calculate the future value of $100 at
5% for 5 years:
$127.63 = $100 x (1.05)5

FV = PV x [ 1 + (I/ N) ] (N*T)
Where,
FV is Future value of money,
PV is Present value of money,
I is the interest rate,
N is the number of compounding periods annually and
T is the number of years in the tenure.
For instance, if you invest Rs. 1 lakh for 5 years at 10% interest, the
future value of this one lakh will be Rs. 161,051 as per the formula.
This formula can help you to analyze different investments over
different time periods, enabling you to make optimal and
informed financial decisions.