Time value of money

Core study note

Current finance scope + original explanation

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Choose one focal date

Money at different dates cannot be added directly. Move every cash flow to a common valuation date first.

For effective rate i, moving amount C from time s to time t gives C(1+i)^(t-s). A positive exponent accumulates forward; a negative exponent discounts backward.

Invariant

Changing the focal date changes the numerical representation of each cash flow, but an equivalent financial equation remains equivalent.