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Showing posts with the label Time value of money

Time value of money, Present Value (PV), Future Value (FV), Net Present Value (NPV), Internal Rate of Return (IRR)

Why do I use my current money to invest in the stock market? Because I expect to have more money in the future. Why do I need more money in the future than now? Because of many reasons, the same amount of money will have less purchasing power than today. Therefore my investment needs to generate more money than today to protect my purchasing power in the future. That is the main concept of the time value of money where one dollar today is worth more than one dollar in the future. Present Value (PV), Future Value (FV) Net Present Value (NPV) Discount rate Internal Rate of Return (IRR) Conclusion Series: how to calculate internal rate of return (IRR) and net present value (NPV) for a stock portfolio in Google Sheets Present Value (PV), Future Value (FV) At 10% annual growth rate, an investment of 1000$ will be worth 1000 * 110% = 1100$ after 1 year, and will be worth 1000 * 110% * 110% = 1210$ after 2 years. The future value of 1000$ after 2 years at the