CFA Level 1 – Quantitative Methods Time Value of Money
Time value of Money is probably the single most important topic in Quantitative Methods as it underpins so many finance concepts.
Major Points :
- Future Value (FV) : Amount to which an investment will grow after one or more compounding periods. Typically you will be asked to calculate the future value of a current cashflow given an series of interest rates.
FV = PV(1 + I/Y) N
- Present Value (PV) : The current value of a cash flow or series of cash flows.
PV = FV/(1 + I/Y)N
- Annuities: Series of equal cash flows which occur at regular intervals over time.
- Ordinary Annuity : Cash flow at the end of a time period
- Annuity Due : Cash flow at the beginning of a time period.
- Perpetuity : Annuity with an infinite life: