A time value of money calculator helps investors to see the effect that opportunity costs have on the cash flow they get from an investment. This time value of money, or TVM, calculator allows the user to enter an initial investment, cash flows, and opportunity cost to calculate the net present value of the money. This allows the investor or analyst to see the affect that time has on the actual value of the money returned.
The variables used in our online calculator are defined in detail below, including how to interpret the results.
Initial Investment ($)
This is the initial investment made in order to achieve the subsequent cash flow. This can include the purchase of an asset, or an investment in a security such as a bond.
Cash Flow from Investment ($ / Time Period)
This is the cash flow, or money, that you receive in each time period. A time period can be any length such as a year, quarter, month, week, or day.
Number of Time Periods
This is the total number of time periods that you receive the cash flow entered earlier. Please note that the definition (year, quarter, month, week, or day) must be consistent throughout this example.
Opportunity Cost (% / Time Period)
This is the opportunity cost, or alternative, you have in addition to this investment. For example, if you could invest your money in a bond, or place it in a bank account at 4% rate of interest, then your opportunity cost is 4%.
Final Value of the Investment ($)
This is the final value returned to you at the end of the last investment period. For example, if you invested $1,000 in a bond and that $1,000 was returned at the bond's expiration, then enter that amount here. For an asset, this could be the salvage value, or current market value, of the investment. Keep in mind this value can be zero in some cases.
Net Money Gained from Investment ($)
This is the net money gained, or lost, from the investment. This value does not recognize the time value of money. The net money gained is simply the cash flow stream, minus the initial investment, plus the final value of the investment.
Net Present Value of Money ($)
This is the net present value of money, which takes into consideration the time value of money. This calculation discounts the cash flows, and final value of the investment, by the opportunity cost.
Affect of Time Value of Money ($)
This final calculation demonstrates the affect of the time value of money. This number is calculated by taking the net money gained from the investment, which does not recognize the TVM concept, and subtracts from it the net present value of the investment.
Time Value of Money Calculator - Copyright © 2006 - 2011 Money-Zine.com
Disclaimer: These online calculators are made available and meant to be used as a screening tool for the investor. The accuracy of these calculations is not guaranteed nor is its applicability to your individual circumstances. You should always obtain personal advice from qualified professionals.
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