The Core Principle: Time Value of Money

The Time Value of Money (TVM) is the fundamental financial concept that a sum of money is worth more now than the same sum will be at a future date due to its potential earning capacity. This core principle underpins nearly all aspects of finance, from personal savings and loans to corporate investment decisions.

The Five Key Variables of TVM

Any TVM problem involves five components. This calculator allows you to solve for any one of them if you know the other four.

• Present Value (PV): The value of a future sum of money or stream of cash flows as of today.
• Future Value (FV): The value of an asset or cash at a specified date in the future, based on an assumed rate of growth.
• Payment (PMT): The amount of a constant series of payments made over a period of time. For loans, this is your periodic payment. For investments, this is your periodic contribution.
• Number of Periods (N): The total number of payments or compounding periods in the investment or loan's life. Our calculator takes years and compounds per year to calculate this for you.
• Interest Rate (I/Y): The periodic interest rate, which is the "cost of money" or the rate of return.

Practical Applications and Cash Flow Signs

You can use this calculator to solve real-world problems:

• Savings Goal: How much do I need to save (PMT) each month to have $500,000 (FV) in 30 years?
• Loan Payment: What will my monthly payment (PMT) be on a $300,000 (PV) mortgage?
• Investment Return: What interest rate (Rate) did I earn if I invested $10,000 (PV) and it grew to $25,000 (FV) in 8 years?

Important: Remember to use the correct signs for cash flows. Money you pay out (investment, loan payment) should be entered as a negative number. Money you receive (loan amount, final withdrawal) should be a positive number.