# Time Value of Money

## KNOWLEDGE EXPECTED OF: Both CFP® Professionals and QAFPTM Professionals

• Explain the concept of the time value of money.
• Explain the use of 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.

## Glossary of Verbs (mouse over to see definition)

• 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

• 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 judgement through careful study

• Interpret

To give the meaning of / to construe or understand / to translate orally Read more about the Taxonomy used in the FP-BoK