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Time Value of Money
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3 Time Value of Money
The examples in the following sections are calculated with the Mode menu preferences in their default settings, unless
otherwise noted. For more information about basic features and setting preferences, see Chapter 1
, Basic Features
.
Time Value of Money (TVM) Keys
Cash flow diagrams are useful tools for analyzing financial situations, as they help you identify the TVM functions needed to
resolve your problem.
A cash flow diagram is a drawing with a set of vertical arrows arranged on a horizontal line. The horizontal line represents the
period of time from the beginning of the financing to the end. The vertical arrows represent the money or cash flows at certain
times throughout the period. The arrows' length is proportional to the cash flow amount each arrow represents; a longer arrow
indicates a larger amount, a shorter arrow, a smaller amount. Each arrow's position on the line represents the time at which
the cash flow occurs. The orientation of the arrow, up or down, represents the "direction" of the cash flow: up for money
received, down for money paid out. See Figure 1.