Time Value of Money Concepts
Chapters in this video
- 0:00 Why a dollar today beats a dollar tomorrow: opportunity cost
- 0:28 Future value and the compounding snowball
- 2:48 The Rule of 72: whole numbers and inflation adjustments
- 4:43 Net present value: the dollar amount and decision grid
- 6:33 Internal rate of return and the bond YTM connection
- 7:41 NPV vs. IRR: the mutually exclusive tiebreaker
- 8:41 Rapid-fire exam recap
What this video covers
- Why a dollar today mathematically beats a dollar tomorrow, and how opportunity cost drives every valuation decision
- How future value uses compounding, and why doubling the time period does NOT double the future value
- Using the Rule of 72 with whole numbers (not decimals) for doubling problems, and adjusting for inflation first when the exam asks about real purchasing power
- What net present value (NPV) measures and the three decision rules: accept when NPV is positive, reject when NPV is negative, indifferent when NPV equals zero
- Why NPV is a dollar amount and internal rate of return (IRR) is a percentage, and how the exam swaps these in answer choices to trick you
- Why IRR equals yield to maturity (YTM) for bonds, and why a vocabulary change does not mean a different concept
- Why NPV wins when NPV and IRR conflict on mutually exclusive projects, since IRR can mislead across projects of different sizes
Read the full lesson, free
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