[Verse 1] A dollar today worth more than tomorrow That's the golden rule we need to follow Present value takes the future back in time Future value makes your money climb With interest rates compounding every year The time value concept becomes crystal clear [Chorus] Present back, future forward, that's the way PV equals FV divided by one plus r to the n-th day Time is money, money grows with time Present back, future forward, mathematical rhyme Compound interest working night and day Present back, future forward, that's the TVM way [Verse 2] Annuities pay the same amount each period Regular payments, steady and methodical Ordinary annuity pays at the end Annuity due pays at the start, my friend PMT times one minus one plus r to the minus n All divided by r, let the formula begin [Chorus] Present back, future forward, that's the way PV equals FV divided by one plus r to the n-th day Time is money, money grows with time Present back, future forward, mathematical rhyme Compound interest working night and day Present back, future forward, that's the TVM way [Verse 3] Perpetuities never end, they pay forever PMT divided by r, remember this endeavor Growing perpetuities increase each year PMT divided by r minus g, the answer's clear When cash flows vary, sum each present value NPV tells you if the deal is true [Bridge] Stated rate is nominal, what they advertise Effective annual rate shows the real surprise One plus r over m raised to m minus one EAR reveals what compounding has done Continuous compounding, e to the power r Natural exponential takes you far [Verse 4] IRR makes NPV equal zero Find that rate, become a finance hero When cash flows jump around, discount each one back Sum them up to see if value you lack Trial and error or let technology solve IRR calculations help decisions evolve [Chorus] Present back, future forward, that's the way PV equals FV divided by one plus r to the n-th day Time is money, money grows with time Present back, future forward, mathematical rhyme Compound interest working night and day Present back, future forward, that's the TVM way [Outro] From single sums to complex cash flow streams Time value of money fulfills financial dreams Present back, future forward, now you know Let compound interest help your money grow
← Trend Analysis and Common-Size Statements | Cash Flow Analysis and Free Cash Flow →