Financial Management: Core Concepts, Third Edition

4.9 Ten Important Points about the TVM Equation

This chapter has added the annuity equations to the tools that financial managers use. The use of annuities is quite common in many financial situations, from personal savings and retirement plans to repayment of loans. By now, you should have a fundamental understanding of the time value of money equation. Here are ten important points to remember:

1. You can add or subtract amounts of money only if they are at the same point in time.

2. The timing and the amount of the cash flow are what matters.

3. It is helpful to lay out the timing and the amount of the cash flow with a time line.

4. Present value calculations discount all future cash flow back to current time.

5. Future value calculations value cash flow ...