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LESSON PLAN: Time Value of Money - GRADE 8-12


Note that the calculation of the time value of money is just the inverse (i.e. undoing) the calculation of the future value of money. That is, for the future value of money, you multiply the Present Value by (1+r)^t, and conversely for the present value of money you divide the Future Value by (1+r)^t.


Where:

r = the interest rate (typically an annual rate of interest)

t = the number of time periods that the interest rate is applied (if an annual rate of interest is being applied, t will correspond to the number of years)


Note that the '1' in (1+r) means that you get 100% of your originally invested money back (plus the rate of interest, r).

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