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Chapter 4.10® - Summary of Time Value Formulas & Calculations

Important Symbols

PV = Present Value, what expected future cash flows are worth today.

FV_{t} = Future value, what today’s cash flows are worth in the future.

r = Interest rate or rate of return or discount rate per period – Usually is compounded annually or once a year.

t = Number of periods, usually 1 year or several years.

C = Cash amount today

ii) Future value of C invested at r percent for t periods

FV_{t} = C x (1 + r)^{t}

This is also known as the future value factor.

iii) Present value of C to be received in t periods at r percent per period

PV = C / (1 + r)^{t}

The equation 1 / (1 + r)^{t} is also known as the present value factor.

iv) Basic Present value equation describing the relationship between present & future value

PV = FV_{t} / (1 + r)^{t}

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