10. Time Value of Money

The formula FV = PV * (1 + r)ⁿ is best used for:

You invest \$4,545 in Clutch Bank today earning a juicy 10% annual interest. What is the value of your investment in one year? What is the value of the investment after two years?

The formula $PV=\frac{FV}{{(1+r)}^n}$ is best used for:

You are saving up \$12,000 for a luxurious European vacation two years from now. How much money would you need to invest today at Clutch Bank, earning their juicy 10% annual interest, to have enough for your vacation? How much would you need to invest today, if instead you could only earn 6% interest?

Today, you purchased a \$1,000 bond that matures in 5 years. The bond pays annual interest of 10%. Visualize these cash flows on a timeline.