Foundations and Applications of the Time Value of Money

Understanding financial transactions--whether involving investing, borrowing, or lending--requires an understanding of the time value of money (TVM), as well as the financial mathematics that go along with it. And while TVM is an essential aspect of finance, there aren't many resources that take the time to fully explain it. In this book, the experienced author team of Pamela Peterson Drake and Frank Fabozzi fully expand upon the type of TVM concepts usually presented as part of an overview given in other general finance books. Throughout these pages, various TVM concepts and principles are discussed, with the authors offering examples in each chapter to reinforce the tools and techniques covered. Problems and detailed solutions--demonstrated using two different financial calculators, as well as Excel--are also provided at the end of each chapter, while glossary terms are included in an appendix, to familiarize you with basic terms. Divided into two comprehensive parts--The Basics of the Time Value of Money and A Few Applications--this comprehensive guide can help you analyze almost any financial transaction and evaluate cash flows to determine values at different points in time or returns on investments. Written with both the aspiring and experienced financial professional in mind, Foundations and Applications of the Time Value of Money Deals with the compounding and discounting of lump sums--translating single values through time Shows how valuing series of cash flows is a simple extension of discounting or compounding lump sums Demonstrates how to calculate the annual percentage rate, the effective annual rate, and the internal rate of return for financial transactions Looks at loans and how they may be amortized Focuses on deferred annuities--which are typically used within the retirement arena--and other "saving-for-future-spending" scenarios in which there is more than one withdrawal of funds in the future Addresses the valuation of stocks and bonds using TVM mathematics Rounding out this detailed discussion, Peterson Drake and Fabozzi examine the applications of the TVM mathematics with regard to: evaluating whether to get an MBA, deciding whether to lease or buy a car, and whether gold is a good investment. And while this is not a personal finance book, the authors chose examples that might interest you in immediately applying the techniques outlined here. Making more informed financial decisions relies on a firm grasp of the time value of money. This book has the insights and advice needed to achieve such a goal.