Chapter 2: Time Value of Money

Learning Objectives

By the end of this chapter, you should be able to:

1. Explain the concept of the time value of money (TVM) and why it is central to finance.
2. Distinguish between present value and future value.
3. Apply the formulas for compounding and discounting.
4. Understand and calculate annuities and perpetuities.
5. Differentiate between ordinary annuities and annuities due.
6. Use effective annual rates and understand continuous compounding.
7. Apply time value of money concepts to real-life corporate finance decisions.