Time Value of Money

KNOWLEDGE EXPECTED OF: QAFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Explain the concept of the time value of money.
  • Explain the use of the time value of money in financial planning.
  • Define the variables that impact time value of money calculations.
    • Present value 
    • Future value 
    • Interest rate 
    • Amount of cash flows 
    • Timing of cash flows (beginning or end of period)
    • Frequency of cash flows
    • Number of compounding periods
    • Frequency of compounding 
  • Explain the effect of a change in one variable on the other variables impacting time value of money calculations. 
  • Calculate time value of money computations.
    • Present value of a single sum
    • Present value of a deferred single sum
    • Future value of a single sum
    • Future value of a deferred single sum
    • Present value of an immediate periodic payment stream
    • Present value of a deferred periodic payment stream
    • Future value of a periodic payment stream
    • Future value of a deferred periodic payment stream
    • Interest rate
    • Internal rate of return for cash flows
    • Value of cash flows
    • Frequency of cash flows
    • Number of compounding periods
    • Frequency of compounding
    • Net present value for a cash flow
  • Interpret the results of time value of money computations.

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Evaluation

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.

  • Explain the concept of the time value of money.
  • Explain the use of the time value of money in financial planning.
  • Define the variables that impact time value of money calculations.
    • Present value 
    • Future value 
    • Interest rate 
    • Amount of cash flows 
    • Timing of cash flows (beginning or end of period)
    • Frequency of cash flows
    • Number of compounding periods
    • Frequency of compounding 
  • Explain the effect of a change in one variable on the other variables impacting time value of money calculations. 
  • Calculate time value of money computations.
    • Present value of a single sum
    • Present value of a deferred single sum
    • Future value of a single sum
    • Future value of a deferred single sum
    • Present value of an immediate periodic payment stream
    • Present value of a deferred periodic payment stream
    • Future value of a periodic payment stream
    • Future value of a deferred periodic payment stream
    • Interest rate
    • Internal rate of return for cash flows
    • Value of cash flows
    • Frequency of cash flows
    • Number of compounding periods
    • Frequency of compounding
    • Net present value for a cash flow
  • Interpret the results of time value of money computations.