The Time Value of Money

CFA level I / Quantitative Methods: Basic Concepts / The Time Value of Money

Learning Outcome Statements

1. Required rates of return, discount rates, and opportunity costs
a. interpret interest rates as required rates of return, discount rates, or opportunity costs;

2. Components of an interest rate
b. explain an interest rate as the sum of a real risk-free rate and premiums that compensate investors for bearing distinct types of risk;

3. Present value and future value of cash flows
e. calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash flows;

4. Effective annual rate based on stated annual rate and the frequency of compounding
c. calculate and interpret the effective annual rate, given the stated annual interest rate and the frequency of compounding;

5. Time value of money problems based on compouding frequency
d. solve time value of money problems for different frequencies of compounding;

6. Use of timeline in solving time value of money problems
f. demonstrate the use of a time line in modeling and solving time value of money problems.

The Time Value of Money: Chapter Test
12 Questions, 18 Minutes