📝
tvmbeginner20 min
TVM Exam Workflow
A practical process to solve TVM problems quickly and accurately on exams.
What You'll Learn
- ✓Map cash flows on a timeline
- ✓Pick the correct formula for each scenario
- ✓Check reasonableness of your answer
1. Build the Timeline
Write time 0 through n and place every cash flow exactly where it occurs. This single step prevents most TVM errors.
Key Points
- •Never skip timing
- •Signs matter: outflows are negative
- •Label each period clearly
2. Match Rate and Period
If periods are monthly, your rate must be monthly too. Divide APR by 12 for monthly, 4 for quarterly.
Key Points
- •Convert APR when needed
- •Watch compounding frequency
- •EAR converts to any compounding
3. Choose the Right Formula
Single sum: PV/FV. Equal payments: annuity. Infinite equal payments: perpetuity. Mixed: discount each individually.
Key Points
- •Annuity requires equal and evenly spaced payments
- •Growing perpetuity needs g < r
- •Uneven flows require individual discounting
Key Takeaways
- ★Most errors are timing or unit mismatches
- ★A quick estimate catches major calculator mistakes
- ★Annuity due = ordinary annuity × (1+r)
Practice Questions
1. If FV is fixed, what happens to PV when r rises?
PV falls because future cash flows are discounted more heavily.
2. A $100/month payment for 3 years at 12% APR: what is n and r?
n = 36 months, r = 1% per month.
FAQs
Common questions about this topic
Memorize core forms (PV, FV, annuity, perpetuity) and rely on timeline logic for the rest.
Related Study Guides
💵 fixed-income
Bond Valuation Step-by-Step
📈 capital-budgetingCapital Budgeting Decision Framework
🏦 personal-financeHow to Calculate Monthly Loan Payments: The Amortization Formula with Worked Examples
💰 personal-financePersonal Budgeting and Emergency Funds: The 50/30/20 Rule, Cash Reserves, and Building Financial Stability
Browse All Study Guides
📝 TVM Exam📊 Financial Statements📈 Capital Budgeting💵 Bond Valuation⚖️ WACC Calculation💹 Stock Valuation🎲 Risk and🏆 CFA Level⏰ What Is📋 How to🔢 What Is📊 Financial Ratios:💰 How to📉 Bond Pricing💰 What Is📊 Options Explained:🏢 Mergers and🏠 Loan Amortization🏛️ How the📈 Portfolio Construction:🧠 Behavioral Finance:📊 How to📦 ETFs vs💱 Introduction to📊 How Credit🏘️ Real Estate🛡️ Insurance Fundamentals:₿ Cryptocurrency and🧾 Tax Planning💰 Personal Budgeting🏦 How to⚖️ How to📈 How to⚖️ Break-Even Analysis:📐 CAPM, Beta,💰 Dividend Policy:🎯 Efficient Market⏱️ Payback Period📈 Bond Duration📉 Yield Curve💰 Free Cash⚖️ Leverage Ratios:🔢 Options Greeks⚖️ Sharpe Ratio📈 How to🎯 Put-Call Parity:📐 Beta Calculation:🔭 Exit Multiple📐 CAPM vs🌉 Enterprise Value📝 Net Debt📊 DCF Sensitivity📦 Inventory Ratios:📈 Pro Forma🏦 LBO Model🌳 Real Options💰 DCF Valuation:📆 Mid-Year Convention⚖️ DCF vs📐 DCF Terminal⚖️ Weighted Average📈 NPV vs📊 Comparable Company💰 LBO Modeling:🤝 Merger Model: