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Foundations and Applications of the Time Value of Money


In this latest collaboration from Pamela Peterson Drake and Frank Fabozzi, the authors provide comprehensive coverage of the time value of money and fully expand upon related concepts that are usually presented as part of an overview in other general finance books.

Chapter by chapter, various time value of money concepts and principles are discussed and many examples are used to reinforce the tools and techniques covered. Problems and detailed solutions—demonstrated using two different financial calculators, as well as Excel—are also provided at the end of each chapter, while glossary terms are included in an appendix, to familiarize you with basic terms.

Divided into two comprehensive parts, this reliable resource:

  • Provides the basic foundations of the time value of money
  • Outlines the financial mathematics you need to know in order to make more informed financial decisions

  • Covers issues ranging from calculating present/future values to loan amortization

  • And much more

Understanding the time value of money is essential, and with this reliable resource as your guide, you'll quickly gain a firm grasp of its many aspects and real-world applications.

PAMELA PETERSON DRAKE, PhD, CFA, is the J. Gray Ferguson Professor of Finance and Department Head of Finance and Business Law at James Madison University. Prior to joining James Madison University, she was an associate dean and professor of finance at Florida Atlantic University, and, previous to that, a professor at Florida State University.

FRANK J. FABOZZI, PhD, CFA, CPA, is Professor in the Practice of Finance and Becton Fellow at the Yale School of Management, Editor of the Journal of Portfolio Management, and Associate Editor of the Journal of Structured Finance and the Journal of Fixed Income.


About The Authors.


Part 1: The Basics Of The Time Value Of Money.

Chapter 1: The Value Of Compounding.


Calculator And Spreadsheet Solutions.

Frequency Of Compounding.

Chapter 2: Don't Discount Discounting.


Discounting More Than On Future Value.

Determining The Number Of Compounding Periods.

Chapter 3: Cash Happens.

Valuing A Stream Of Future Cash Flows.

Valuing A Perpetuity.


Chapter 4: Yielding For Yields.

Annualized Rates Of Interest.

Determining The Unknown Interest Rate.


Part 2: A Few Applications.

Chapter 5: Loans: To Amortize Or Not To Amortize.

Amortizing A Loan.

Interest Rates On Loans.

Determining The Number Of Periods.

Variations On The Theme.

Chapter 6: Saving To Spend.

Valuing A Deferred Annuity.

Annuities With Annuities.

A Bit Of Realism.

Chapter 7: Values Tied To Bonds.

Bond Basics.

Calculating The Yield To Maturity.


Chapter 8: Taking Stock.

What's In A Value? The Basics Of Stock Valuation.

Returns On Stocks.

Chapter 9: A Capital Idea.

The Net Present Value.

The Profitability Index.

The Internal Rate Of Return.

Chapter 10: Fact Or Fiction.

Fact Or Fiction: It Pays To Get An MBA.

Fact Or Fiction: Leasing A Car Accosts Less Than Buying A Car.

Fact Or Fiction: Gold Has Always Been A Good Investment.


Appendix A: Using Financial Calculators.

Preparing The Calculator.

The Basics.

Financial Functions.



Appendix B: Using Spreadsheets For Financial Calculations.

The Basics.

Time Value Of Money Functions.

Cash Flow Functions.

Other Useful Functions For Financial Mathematics.

Appendix C: Formulas.

Appendix D: Glossary.

Appendix E: Solutions To End-Of-Chapter Problems.