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Miscellaneous Programs and Equations 17-1
17
Miscellaneous Programs and Equations
Time Value of Money
Given any four of the five values in the "Time–Value–of–Money equation" (TVM),
you can solve for the fifth value. This equation is useful in a wide variety of financial
applications such as consumer and home loans and savings accounts.
The TVM equation is:
The signs of the cash values (balance, B; payment, P; and future balance, F)
correspond to the direction of the cash flow. Money that you receive has a positive
sign while money that you pay has a negative sign. Note that any problem can be
viewed from two perspectives. The lender and the borrower view the same problem
with reversed signs.
01001
100
10011
=+++
⎥
⎦
⎤
⎢
⎣
⎡
+−
−
−
B))I((F
I
)I(
P
N
N
Balance, B
Future Value, F
Payments, P
N
_
1
N
1
2
3