Time Value of Money

Class Topics:

This section of the consists of a number of topics that build on one another in order to train the student to perform various Time Value of Money (TVM) calculations.  These TVM calculations are the basis for a wide variety of financial decisions faced by managers and by individuals.  The skills learned are required in order to understand and master the material in later sections covering capital budgeting, investment analysis, and valuation procedures.

Text Readings and Assignments:

Fundamentals of Financial Management, by Eugene F. Brigham & Joel F. Houston, 11th. edition, (Thomsom - South-Western) ISBN: 0324319800

Student Textbook Website

Assigned Readings:                Chapter 2 (pp. 24-54)

Solutions to the assigned end of chapter questions and problems are available here.

Dr. Constand's Online Readings:

The link below will take you to the professors' notes and discussions on the topics. 

Here are some readings I put together for the TVM topics.

Basic Topics:

Overview Discussion

Terminology, Timelines and Tables

Simple Interest and Compound Interest

Future Value of a Dollar

Present Value of a Dollar

Future Value of an Ordinary Annuity

Present Value of an Ordinary Annuity

Future Value of an Annuity Due

Present Value of an Annuity Due

Discount Rates and Rates of Return

Topic 2 Quiz

Topic 2 Quiz Solutions

FOR FINANCE MAJORS:

For this chapter there is also an EXCEL  Chapter Model associated with the material.  You may want to study the calculations in the model along with your coverage of the textbook topics and these online notes.  Alternatively, you may want to cover the textbook and then proceed to the model.   Either way, it would be a good idea to take a quick look at the EXCEL Assignment before you start the material.

SUGGESTED EXCEL STUDY Assignment - This will help you learn about the Time Value of Money (TVM) calculations in an EXCEL work environment.  While the FIN 3403 class focuses on calculator applications of time value concepts, the FIN 4424 class (Problems in Corporate Finance) that finance majors are required to take will focus heavily on EXCEL calculations so if you are a finance major you should start learning EXCEL now.

SAMPLE Homework #1 - This shows a sample of undergraduate student work turned in for the EXCEL  TVM Homework assignment.  It is not a great example of a student work product but it does an acceptable job of fulfilling the assignment requirements.

SAMPLE Homework #2 - PDF file - This shows a sample of undergraduate student work turned in for the EXCEL  TVM Homework assignment. The original was an excellent attempt by an undergraduate student for their first assignment.  I cleaned up the presentation and made some minor corrections in equation presentation.  It now represents the quality of work I would expect from a graduate student.  It still has some weaknesses.  For example, the timeline drawings were made using the drawing tools in EXCEL and there is a better way to draw timelines using the "Border" commands for individual cells.  Furthermore, the equations were created as text embedded in the cells of the spreadsheet while the MS Equation Editor could have been used.

SAMPLE Homework #2 - EXCEL file - Here is the actual EXCEL file used to print the PDF file discussed above.  You can examine this file to see how calculations were made in different cells of the spreadsheet.

Return to

home page for FIN 3403

or jump to another topic in this module:

Overview of Entire Module

Time Value of Money

Analyzing Financial Statements

Risk and Return in Finance

Interest Rates

Debt - Valuation and Rates of Return

Equity - Valuation and Rates of Return

Calculating the Weighted Average Cost of Capital

Capital Budgeting - Valuation of Investment Projects