Formulas

The fundamental formula in the principle of Time Value of Money is the formula for Future Value used to calculate the value of an investment.

• FV - future value, expected value from an investment
• PV - the sum of money put in the investment,
• r - the guaranteed interest rate from the investment,
• t - number of periods.

Directly from the FV formula derives the forumla for Present Value used for estimating what a yield from a prospective investment is worth in terms of present-day money.

To know how much time it would take to get from PV to FV at an assumed interest rate r, the following formula can be applied.

$$t=\frac{\ln \left(\frac{FV}{PV}\right)}{\ln \left(\mathrm{1+r}\right)}$$

Finally, to answer the question of what is the average interest rate if FV, PV and t were given:

$$r=\sqrt[\mathrm{t}]{\frac{FV}{PV}}-1$$