16634 Lecture Notes - Lecture 2: Compound Interest, Cash Flow, Interest

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Lecture 2: topic 2 the value of money calculations. Time value of money (tvm) is a concept whereby money available today is worth more than the same amount of money in the future, based on its earnings potential. This principle asserts that money can earn interest and grow, and so any amount of money is worth more the sooner a person has it, so that it can be put to use now rather than later. Because of this potential, money that"s available in the present is considered more valuable than the same amount in the future. In addition, because of money"s potential to increase in value over time, you can use the time value of money to calculate how much you need to invest now to meet a certain future goal. There are two ways of dealing with interest calculations: simple interest, compound interest. Simple interest is computed only on the original amount borrowed.

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