Some of the factors that impact time value as we get into the next sections

discussing some of the formulas that can be useful to us,

as we encounter various time value problems in some of the things we'll be

talking about throughout the course.

We're going to relate this to what those things actually show up as in some of

those time value formulas.

So, the first thing I'll talk about is interest rates.

So here, we're going to be referring to actual size of the interest rate

itself as well as how often interest is calculated or compounded.

Both of those factors are going to affect how much more a dollar is worth

today than a dollar is worth tomorrow or how big our payment has to be on

that loan to pay it off over a specific period of time?

Or how much money we need to save to be able to get to a specific target

amount at some point in the future?

So, interest definitely plays a big role In our time value problems

that we encounter in everyday life.

The second factor is obviously, time.

Time enters is one of the words used in the time value of money phrase.

So, how long will you save or invest?

That's going to impact how much you need to save in or invest, or

how much money you're going to have in the future.

Over what time period are you going to pay back a loan?

That's going to impact the size of our loan payments.

And then finally, value enters into the time value of money.

So, how many dollars are we actually talking about?

Are those dollars relevant today?

So are we referring to or are we concerned with what we would refer to

as a present value, or are we talking about

dollar amounts that we're concerned with at some point in the future?

Some type of future value in terms of the dollars associated with

the time value problem or situation that we're considering.

And then finally, are we dealing a single amount of money?

So are we going to save a single amount today or

are we saving to reach a specific amount of future, or we're dealing with

a situation where there's going to be a series of payments made,

or series of different deposit, or savings amounts that are made overtime.

We're going to have formulas that help us deal with each one of those situations

Independently.

So as we move on to parts two and three of this lecture segment on the time value,

we're going to get in to some of those formulas,

specifically and look it exactly how those work.

First, we're going to focus on the time value formulas that involve

a single payment and the two formulas that we're going to cover

in this section are basically going to be converting from a single dollar amount

today into an equivalent dollar amount in the future.

So a problem where we're compounding or

converting dollar amounts today to some dollar amount in the future, or

we're also going to look at a formula where we are discounting.

So based on a future dollar amount, what is the equivalent present value?

So the first formula that we'll take a look at is the Single Payment Compound

Amount or as an acronym, we can refer to this one as SPCA.

What this formula does is it solves for or finds a future value based

on a present value, an interest rate and a length of time.

So this is going to give us a future value,

as long as we know a present value and interest rate in a length of time.

Some example where we might find this formula useful.

So supposed that you want to fine out if you save or invest $100 today and

earn 6% interest, how much money will you have in 10 years?

SPCA is a formula that will give you the answer to those types of questions against

solving for a few future value based on the present value given an interest rate

and a length of time.

Again, here we're referring to single dollar amounts.

It's a single present value.

What is the future value of that,

the single future value of that based on an interest rate and a length of time?