Developing Financial Insights: Using a Future Value (Fv) and a Present Value (Pv) Approach

12 Pages Posted: 30 May 2017

See all articles by Mark E. Haskins

University of Virginia - Darden School of Business

Abstract

This case provides a tutorial on the basic concepts associated with straightforward time-value-of-money scenarios. The topics of future value (FV) and present value (PV) are discussed and exemplified for both lump sum and recurring cash flow situations. In this vein, the derivation and use of four useful time-value-of-money reference tables is presented to highlight the underlying logic, connections, and mechanics of determining FVs and PVs. The case also provides students with several simple vignettes in which they can apply the foregoing time-value-of-money insights and techniques. The case can be effectively used in degree and nondegree programs, and it requires no additional reading materials. It is well suited for one 90-minute class period and all, or selected subsets of the vignettes contained in it may be assigned. A teaching note is available to registered faculty.

Excerpt

UVA-C-2318

Jun. 1, 2011

Developing Financial Insights:

Using a Future Value (FV) and a Present Value (PV) Approach

Base Case Starting Point

Most everyone is familiar with the concept that money placed in a savings account will grow to a larger amount as the years pass if the money in that account earns interest at a specified annual compounded rate. For example, \$ 500 invested in a savings account that earns 10% interest compounded annually will grow to become \$ 550 (i.e., \$ 500 × 1.10) after one year, \$ 605 (i.e., \$ 550 × 1.10) after two years, and \$ 665.50 (i.e., \$ 605 × 1.10) after three years.

. . .

Keywords: discounted cash flows, future value, present value, financial analysis, time value of money

Suggested Citation

Haskins, Mark E., Developing Financial Insights: Using a Future Value (Fv) and a Present Value (Pv) Approach. Darden Case No. UVA-C-2318, Available at SSRN: https://ssrn.com/abstract=2974022