Finance Calculator
The Time Value of Money (TVM)
The time value of money is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim. This principle is the foundation of finance. A dollar today can be invested to earn interest, making it more valuable than a dollar received tomorrow. This calculator is a powerful tool for exploring all aspects of TVM.
The 5 Key Variables of TVM
- Present Value (PV): The current value of a future sum of money or stream of cash flows given a specified rate of return.
- Future Value (FV): The value of an asset at a specific date in the future. It is the PV after factoring in interest earned over time.
- Number of Periods (N): The total number of compounding periods in the financial analysis.
- Interest Rate (I/Y): The rate of return or discount rate used in the calculation. This is typically an annual rate.
- Periodic Payment (PMT): A series of equal, recurring payments made over a specified period. Payments can be inflows (like rental income) or outflows (like mortgage payments).
Frequently Asked Questions (FAQ)
How are payments (PMT) handled?
Payments are treated as cash outflows by default, so they should typically be entered as a negative number (e.g., -100 for a $100 payment). This calculator allows you to specify whether payments occur at the beginning or end of each period, which can significantly impact the final calculation.
What is this calculator used for?
This is a universal financial calculator that can solve for almost any time-value-of-money problem. It can be used for calculating mortgage payments, planning for retirement (finding the FV of your savings), determining how much you need to save (calculating PMT), and much more.