![]() ![]() Here are some general ideas about how to identify them: Present Value Any value that occurs at the beginning of the problem (or the beginning of a part of the problem) is a present value. That way, you will have separated the values from the text.Īs noted above, there are up to five variables in every problem. Write down (and label) that number to the side of the problem. When reading through a time value of money problem you should always stop when you come to a number. Furthermore, the words that are used and the order in which the variables are given is never the same. What makes this difficult, sometimes, is that you are given a problem (sometimes a long one) and you have to identify the variables amidst a bunch of words. The most important thing is to be able to identify the variables that you have been given, and the one that you are looking for. If necessary, you can always deal with each cash flow separately, and then add up your results in the end. Thanks to the principle of value additivity, we can think of uneven cash flow streams as a series of lump sum cash flows. It may seem that problems involving uneven cash flow streams don't fit the description above, but they do. You will always know the values of all but one of these, and it is that missing value for which you will be solving. In many cases, one of these variables will be equal to zero, so the problem will effectively have only four variables. There are Always Five VariablesĮvery time value of money problem has five variables: Present value (PV), future value (FV), number of periods (N), interest rate (i), and a payment amount (PMT). ![]() On this page I will offer some tips that I hope will be helpful. One of the biggest obstacles to correctly solving time value of money problems is identifying the cash flows and their timing. Are you a student? Did you know that Amazon is offering 6 months of Amazon Prime - free two-day shipping, free movies, and other benefits - to students? Click here to learn more ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |