Time value of money explained

Поділитися
Вставка
  • Опубліковано 15 гру 2024

КОМЕНТАРІ • 110

  • @TheFinanceStoryteller
    @TheFinanceStoryteller  5 років тому +6

    Enjoyed the video? Then subscribe to the channel, and let's explore Net Present Value next: ua-cam.com/video/N-lN5xORIwc/v-deo.html

  • @RafaelSilva-sk1jd
    @RafaelSilva-sk1jd 2 роки тому +32

    Watched this at 2x speed. Now I’m twice as rich

  • @abeeralharbi3607
    @abeeralharbi3607 Рік тому +2

    you explained it better than my professor, thanks!!

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  Рік тому

      Wow, thanks! Please share the video with your fellow students, and let's go ace those tests!

  • @JogNearNinjas
    @JogNearNinjas 3 роки тому +13

    Excellent explanation. I’m a semester away from an MBA and this beats all the textbook explanations I’ve read. Quick question. All the FV/PV examples rely on some sort of guaranteed or safe interest rate. How do our current extremely low guaranteed interest rates affect calculations like this? Given a 1% safe rate if you’re lucky, almost any project looks like a better investment.

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  3 роки тому

      Hello Jason! Thank you for the kind words. Yes, the extremely low interest rates should affect capital budgeting calculations (through the denominator in the calculation: cost of capital). However, the numerator also gets more volatile and tougher to predict. That might be the reason companies are still holding back with investing. Besides low interest rates (driven by the monetary policy of central banks), governments try to stimulate investments through favorable depreciation treatments on the taxation side. For that last point, see my recent video on deferred tax liabilities: ua-cam.com/video/wom7IBNnXM8/v-deo.html

  • @joshuabrown6654
    @joshuabrown6654 4 роки тому +5

    Great video, in the future you could consider showing us old folks how to input this into a calculator. It's been a long time since I've had to do this type of work.

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  4 роки тому +2

      Thanks, Joshua! I am more of a spreadsheet guy myself. Here's the link to my video on calculating Net Present Value in Excel: ua-cam.com/video/jQ_NDQ2qVVA/v-deo.html

  • @obeychrist0777
    @obeychrist0777 Місяць тому +1

    I find it easier to calculate in excel but this was a good explanation too!

  • @jialincai3744
    @jialincai3744 3 роки тому +1

    Thank you. Im omw to IBD interview as a non-finance major. Your videos help alot.

  • @deionoliver7217
    @deionoliver7217 3 роки тому +5

    Thank you very much for making this video it was extremely helpful and made the concept easy to understand! Just subscribed!

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  3 роки тому

      Awesome, thank you! Welcome to the channel, hope you find many more videos that are helpful for you.

  • @timothymtroy
    @timothymtroy 2 роки тому +2

    Would you be so kind to share the powerpoint that you used in this lesson? I found it extremely helpful.

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  2 роки тому

      Thank you for the kind words, Timothy! However, I consider the slides the core of my intellectual property, and do not share them.

  • @wn.4112
    @wn.4112 Рік тому +1

    This is a wonderful explanation

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  Рік тому

      Thank you so much! 😊 Once you understand time value of money, terms like NPV and IRR are easy to grasp: ua-cam.com/video/N-lN5xORIwc/v-deo.html&pp=gAQBiAQB

  • @14dayztimeap8
    @14dayztimeap8 5 місяців тому +2

    Great Explanation. Subscribed.

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  5 місяців тому +1

      Wonderful! Nice to hear that. Ready for the next step of working with Net Present Value? ua-cam.com/video/N-lN5xORIwc/v-deo.html&pp=gAQBiAQB

    • @14dayztimeap8
      @14dayztimeap8 5 місяців тому +2

      @@TheFinanceStoryteller Already enjoyed that video too! Thanks. You are a dynamic person.

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  5 місяців тому

      Thank you! I try to make videos mainly in 4 areas: financial statement analysis, accounting, investing, and Excel tutorials. 272 videos in total to choose from, hope you find a few more that are helpful.

  • @Snoopdon2112
    @Snoopdon2112 4 роки тому +3

    Awesome video thank you

  • @EDRIANJADEALCARIA
    @EDRIANJADEALCARIA Рік тому +1

    very clear thanks!

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  Рік тому

      Glad it helped! Have a look at how you can apply the time value of money concept to investment analysis through for example NPV: ua-cam.com/video/N-lN5xORIwc/v-deo.html&pp=gAQBiAQB

  • @moneyfool246
    @moneyfool246 4 роки тому +3

    Hi Finance storyteller, this is not related to the title here, but i'v been your subscriber and using your videos to learn about Finance. So grateful i'v found you. What book will u recommend for a newbie in finance to practise the maths with cases and examples in it?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  4 роки тому +1

      Hello Yenny! I don't have a particular book recommendation for you. I would start from real life: do you have shares in any companies listed on the stock market, or are you in general interested in the performance of some well-known companies? Download their annual report, review the financial statements, read the MD&A (management discussion and analysis), and calculate things like gross margin %, operating margin %, current ratio, etc.

    • @moneyfool246
      @moneyfool246 4 роки тому +2

      @@TheFinanceStoryteller Hi... Real case examples yes that would be the best! :) I agree. Well, I am here actually for 2 main missions and goals. I am a teacher (cambridge curriculum) and trying to get my cert in finance so i will be eligible to teach finance to secondary and high school students (my bachelor degree is not linear to finance). That tagline 'New to finance & accounting? Start here' works like a map, thx a lot :). I've been reading books related to behavioral finance as well. Secondly, yes, i'v been learning about investment also through books and videos and is into investing but I only buy domestic stocks (southeast asia) .. well for now. Ok, then but your answer rings the bell! Use real examples for real cases in class. I might be joining to become member. But right now, i have plenty to learn from your channel. Thx again for delivering the complex material in a light way. You are an inspiration. This is a brilliant work here!

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  4 роки тому +1

      Wow, thank you so much! It is wonderful to receive such compliments, and exciting to "meet" (in a virtual way) other people from around the world that have a love of learning. :-) Yes, especially with secondary and high school students, it is important to relate to products and companies they are familiar with (Apple, Google, Netflix. etc/). You can get them thinking about how much money these companies make (in terms of profitability for example), my Gross Margin / Operating Margin video has a good quiz question for this: ua-cam.com/video/VCMJzG1AaXA/v-deo.html Follow-up question to the video is why certain companies/industries have a certain range of profitability. Regarding Netflix, they do very well in certain areas of financial results, but struggle in other areas: ua-cam.com/video/ikizI8dX1SA/v-deo.html
      What I found out myself after studying finance concepts in school and university, is that I knew how to calculate a lot of things, but I was not "calibrated" on ranges of outcomes in real life. My video on the current ratio (balance sheet analysis of liquidity) is an example there: ua-cam.com/video/dkiSWO2OYho/v-deo.html My "Community" tab has some multiple choice review questions, take a look if any of these are useful for you. Happy to connect with you! Look forward to more questions or suggestions.

    • @moneyfool246
      @moneyfool246 4 роки тому +1

      @@TheFinanceStoryteller hi again, yes true! Real life examples are applicable and that should be more compelling for the students to win the challenges in class. I want to teach differently and thx for the input for teachers community. :) 'calibrate' hmmm, i see. For the channel community, yeah i've just checked what's inside and did 1. Will do more. Thx also for the links u inserted here. I will def ask questions and give suggestions next time as I become more comprehended and engaged with this fundamental 'wish i had known this way back before' subject. Foremost, thank u so much for replying me. :))

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  4 роки тому +1

      @@moneyfool246 I enjoy conversations like this. Still learning a lot everyday myself, I think that will never stop. :-)

  • @mothernature4580
    @mothernature4580 3 роки тому +1

    Nice

  • @funkadog
    @funkadog 3 роки тому +3

    Great video, But I can't be the only one who'd still take the hundred today.

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  3 роки тому

      Better be safe than sorry! ;-) What would be the equivalent that would convince you to wait for a year? $150? $200?

  • @kishor_kedar.6625
    @kishor_kedar.6625 2 роки тому +1

    nicely explained

  • @MD-cu6wq
    @MD-cu6wq 3 роки тому +1

    Brilliant as usual✌🏼👏🏻

  • @gabrielakoleva2267
    @gabrielakoleva2267 4 роки тому +1

    Very helpful video! Thank you!

  • @georgebrooking3820
    @georgebrooking3820 3 роки тому +1

    got damn that was incredibly clear and precise. what talent. thank you

  • @abdesamad6616
    @abdesamad6616 Рік тому +1

    thank you so much sir

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  Рік тому +1

      Happy to help!

    • @abdesamad6616
      @abdesamad6616 Рік тому +1

      @@TheFinanceStoryteller 👍🏻

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  Рік тому

      Have a look at the videos in my NPV IRR WACC playlist to see how to apply the time value of money concept in calculations to evalulate investment projects: ua-cam.com/video/N-lN5xORIwc/v-deo.html&pp=gAQB

  • @Moccalocca100
    @Moccalocca100 3 роки тому

    There are people above us who decides what we can buy with 8 hours a day of our life...

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  3 роки тому

      That is a different topic/discussion, as that centers on the money value of time. ;-)

  • @harindermootoor7158
    @harindermootoor7158 2 роки тому +1

    Thank you 🙏🏾

  • @salmaalqubaisi2017
    @salmaalqubaisi2017 3 роки тому +1

    love it wish you teach CFA

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  3 роки тому

      Thanks for the kind words, Salma! I don't cover the whole CFA curriculum, but do cover various parts of it.

    • @salmaalqubaisi2017
      @salmaalqubaisi2017 3 роки тому +1

      @@TheFinanceStoryteller Thank you so much for your respond , if i have some question that i need to explain may i ask your help ? thank you

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  3 роки тому +1

      @@salmaalqubaisi2017 Sure, post the question below the video topic that it relates to. I will be happy to provide help, but don't make people's homework.

  • @AudaciousPooja
    @AudaciousPooja 2 роки тому +2

    Great Applause!

  • @kmegres9337
    @kmegres9337 3 роки тому +1

    hi i dont understand where does 0.05 came from? how to know what is the value of the rate of return?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  3 роки тому +1

      It's a thought experiment. A conversation between two people.
      Question 1. Would you prefer $100 today, or $100 one year from now? Answer: $100 today.
      Question 2. What about a choice between $100 today or $101 next year? Answer: $100 today.
      Question 3. How about $100 today or $110 next year? Answer: $110 next year.
      Question 4. How about a choice of $100 today or $105 one year from now? Answer: fine either way, which means you have found the equivalent amounts in time $100 today * 1.05 (which is 1 + rate of return) = $105 next year.
      In the corporate world, the rate of return is often determined as the WACC ua-cam.com/video/1O-DbtVueMw/v-deo.html or alternatively as the hurdle rate ua-cam.com/video/8EyFLdOTuHU/v-deo.html
      Hope this helps!

    • @kmegres9337
      @kmegres9337 3 роки тому +1

      @@TheFinanceStoryteller thank you so much for rreplying, ill check that out 💓

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  3 роки тому

      @@kmegres9337 Happy to help!

  • @hazelmonterde7042
    @hazelmonterde7042 4 роки тому +1

    How can you describe the time value of money before 50yrs and 50yrs after from today?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  4 роки тому

      Hi Hazel! That is very long time span looking back and looking forward. Who knows what the world looks like 50 years from now, and whether we even still use the same currencies. I find time value of money a useful concept mostly in the mid-term years: 3, 5 maybe 10 years.

  • @kikhwan4648
    @kikhwan4648 6 місяців тому

    But the issue is there is no inflation rate included. Supposed it is an investment (there is no other way we can get free money), we get the AMOUNT of it but what is the value?
    How we want to make sure the amount we get represents the value we have now when the interest rate (what we get) can differ depending on banks or the type of investment?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  6 місяців тому

      Inflation is (implicitly) included. The higher the inflation, and the higher the risk level, the bigger the rate of return will need to be.

    • @kikhwan4648
      @kikhwan4648 6 місяців тому +1

      @@TheFinanceStoryteller I know it will be difficult to determine the true value because it depends on who we trade with.
      So it can be said that in TVOM we assume the interest rate already includes the inflation rate. Am I right?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  6 місяців тому +1

      Agree! Sadly enough, in today's economic circumstances in Europe, banks offer an interest rate that is lower than the inflation rate, which has prompted me to put my money elsewhere (higher yielding and obviously also higher risk bonds of small to medium enterprises).

  • @pratikraj7475
    @pratikraj7475 4 роки тому +2

    What if it was number of months instead of year?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  4 роки тому +2

      The formulas still work.... For example, if you are trying to calculate with 6 months, then put n= 0.5, if you are trying to calculate 3 months, then n = 0.25.
      Future value = present value * (1+r)^n
      Present value = future value / (1+r)^n

  • @aeasee1057
    @aeasee1057 2 роки тому

    just a quick question, how come you need to add 1 in (1+5%)? what does 1 represent?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  2 роки тому +2

      That is just for the multiplication to work:
      $100 times 1 = $100
      $100 times 1.05 = $105

    • @aeasee1057
      @aeasee1057 2 роки тому +2

      thank you for explaining it

  • @mohdaidilazhar4878
    @mohdaidilazhar4878 2 роки тому

    I want to ask ,if someone keep their millions of money at their home, is it affecting the financial status of most of citizen?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  2 роки тому

      Sorry, I am not sure I fully understand your question. If I personally had millions of dollars/Euros/etc, I would put them to productive use to generate yields, rather than have the money just sit there doing nothing.

  • @YaginZx
    @YaginZx 8 місяців тому

    How did you calculate 1.05?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  8 місяців тому

      If $100 today is equivalent to $105 in one year, then the multiplication factor is $105 / $100 = 1.05.

  • @billycat2168
    @billycat2168 5 років тому +2

    good vid. need a better microphone

  • @samizhr
    @samizhr 4 роки тому +1

    Thanks

  • @gfk471
    @gfk471 4 роки тому +1

    And how to determine the ratio " r " ?????

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  4 роки тому

      For "personal finance" cases, you could take the interest rate. For "business" cases, many people would use WACC ua-cam.com/video/1O-DbtVueMw/v-deo.html or a hurdle rate ua-cam.com/video/8EyFLdOTuHU/v-deo.html

  • @jeffwilken7241
    @jeffwilken7241 5 років тому +1

    So is this how interest rates are determined? Supply and demand for money given now versus money given after a delay? If we all agree to postpone our consumption of $100 until one year from now, for a “price” of $5, is that tantamount to saying that our debtors will need to offer us 5%/year for the use of our money?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  5 років тому +1

      Hi Jeff! I like to think about the $100 today / $105 one year from now equivalents as my "required rate of return". If a bank offers me 2% interest on a savings account, then that would be below my 5% required rate of return. If investing in a high dividend yield stock is expected to generate 8% return, then that would be above my 5% required rate of return. Obviously, the latter is more risky than the former, and an expected return is by no means a guarantee. I could split my savings 50/50 between the two (savings account and stock investment), and on average expect to get to the 5% required rate of return. The way interest rates are determined is a whole different topic. It is indeed a matter of supply and demand, with as the starting point the interest rates that central banks charge to commercial banks for various lengths of time. On top of that would come a "risk premium". Central banks have as their main, or at least one of their main goals, keeping inflation at relatively low rates (near +2%) and tend to adjust interest rates up or down accordingly. A bit more information on this in my video on inflation: ua-cam.com/video/dcBBRhNA_QM/v-deo.html

    • @jeffwilken7241
      @jeffwilken7241 5 років тому +2

      The Finance Storyteller Gosh, I just think it’s a total miracle that I can ask a question on UA-cam and receive such a comprehensive, first-rate response. Thank you...seriously, it is so, so generous of you to share this information. And you explain it so well. You’ve got a new subscriber!
      Sounds like I will have to look into interest rates some more; clearly there are mechanisms with which I’m still not familiar. I was just trying to resolve something I heard about “money now” being in higher demand than “money later,” and wondered whether interest rates might be the “price” the market has to pay creditors for parting with their money for some length of time. It seems to me that if enough people decided 2% wasn’t a sufficient return on their money, the banks might be forced to hike that rate up to sweeten the deal for them... In other words, the cash supply curve shifts leftward, thereby raising its price...?

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  5 років тому +1

      You're welcome, Jeff! I like getting questions and comments, so try to answer each one as best as I can. Interest rates are a fascinating topic, in particular negative interest rates (Germany) that governments pay ("investors' flight to safety"). I don't think anybody has a comprehensive answer or explanation. Economists try their best to explain or justify things after the fact, but have poor forecasting ability. I came to terms with the world not always making sense to me, after reading the works of Nassim Taleb, in particular "Antifragile, how to live in a world we don't understand". ;-) It's (amongst others) about economic shocks being more frequent and more unpredictable than we think, and how to avoid getting hurt by them (or even benefiting). Actually, a good start into the works of Taleb might be my introductory video on the Bed Of Procrustes: ua-cam.com/video/fUU9sPU__MY/v-deo.html Bed of Procrustes applied to interest rates and monetary policy: central banks and government policy makes sometimes create harm from trying to optimize the wrong variable!

    • @jeffwilken7241
      @jeffwilken7241 5 років тому +1

      The Finance Storyteller Basically all I know of Taleb’s work is his concept of antifragility, which is an awesome concept. Haven’t read the book, though; I’ll keep your recommendation in mind! For now, will head over to and watch that Procrustean bed video of yours!
      Again, thank you so much for your thoughtful and informative responses. Sincerely appreciated!!

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  5 років тому +1

      Let's stay in touch, Jeff! I am on Twitter, Linked In, Instagram, either under Finance Storyteller or Philip de Vroe.

  • @kngfelixx
    @kngfelixx 4 роки тому +1

    You can apply this for a business?
    I own a company and charge $35 a month for customers to come and play video games at my suite but am thinking of offering a discount to customers if pay a 6 month subscription. If they pay $150 for a subscription, that's about a $10 discount each month ($60 total). Would it be wise of me in doing this? I currently have about 150 people signed up for my subscription service paying $35 a month. I am trying to understand if this is in the best interest to offer something like this...

    • @TheFinanceStoryteller
      @TheFinanceStoryteller  4 роки тому +1

      Hello Felix! Thanks for your question. Time value of money is one aspect of it, which "rewards" people with a discount for paying now instead of later. The other, probably more important, aspect is "locking people in" to a subscription for 6 months, thereby minimizing the risk on your side that they cancel their monthly subscription somewhere along the way. Your business model reminds me of how newspapers and gyms operate, maybe it would be good for you to study their subscription offers and discount levels. I have two videos about prepaid expenses that reference this, but not in too much detail: 1) ua-cam.com/video/hUz39T8-V1I/v-deo.html and 2) ua-cam.com/video/drX-qrrvedo/v-deo.html

  • @CheezhOfficial
    @CheezhOfficial 3 роки тому

    Time isn't money. With money you can make more money. You can't make more time.

  • @sahilmittan5202
    @sahilmittan5202 4 роки тому +1

    Immaculate

  • @sh.sandumimalkaladesilva6873
    @sh.sandumimalkaladesilva6873 3 роки тому +2

    👍

  • @cortneyrichards1730
    @cortneyrichards1730 3 роки тому +1

    In Soviet Russia Time values you

  • @roselandicho2172
    @roselandicho2172 3 роки тому

    Khan academy lang sakalam

  • @impactodelsurenterprise2440
    @impactodelsurenterprise2440 3 роки тому +2

    In short, if you don't buy shit now, its gonna cost more in the future.