Time Value of Money Explained | Future Value and Present Value Formula with Example

Welcome to Manager EDU. In this video, we explain the Time Value of Money – the core financial principle that money available now is worth more than the same amount in the future due to its ability to earn growth through interest or investment returns. You will learn why money today is better than money tomorrow, how to calculate future value using simple and compound interest, and how to derive present value. In this video, you will learn: What the Time Value of Money is and the three key reasons: earning potential, inflation, and risk. The difference between present value and future value. What the r factor means (interest rate plus inflation rate plus risk factor). How to calculate future value using simple interest: Future Value equals Present Value multiplied by (1 plus r times number of years) How to calculate future value using compound interest: Future Value equals Present Value multiplied by (1 plus r) raised to the power of n Step-by-step examples with a present value of one hundred dollars, ten percent r factor, over four years. How compounding frequency affects future value (yearly, semi-annually, quarterly, monthly, daily). How to calculate present value: Present Value equals Future Value divided by (1 plus r) raised to the power of n A challenge for viewers: calculate present value given future value of two hundred dollars, r factor of ten percent, and five years. Post your answer in the comments. Example Used (Simple Interest Future Value): Present Value: one hundred dollars r factor: ten percent Number of years: four Future Value: one hundred forty dollars Example Used (Compound Interest Future Value – yearly compounding): Present Value: one hundred dollars r factor: ten percent Number of years: four Future Value: one hundred forty-six dollars and forty-one cents Key Takeaway: Money today is worth more than the same amount in the future because of earning potential, inflation, and risk. Future value grows linearly with simple int

Added 9 Jun 2026