Confusion on counting years in Time value of money

CFA Level I Quant
#1

I am really getting confused when calculating the number of periods in TVM,
any advice on how to tackle that ?

#2

Do you mean when using a calculator or just in general?

#3

in general how to count the periods especially when there is annuity due

#4

Admittedly, this is something a lot of people still struggle with, including myself.
The best way to do this is to literally draw out a timeline with pen and paper, and label each tick on the timeline with what year.

1 Like
#5

Hi Firas1978,

That’s quite understandable. While it may seem complex, a solid grasp of Time Value of Money (TVM) is fundamental to understanding other financial concepts. In my opinion, progressing without a firm understanding of TVM would be quite challenging.

In response to your request, I strongly recommend building and experimenting with TVM models using Excel. Start with a case study from your curriculum or any relevant textbook and create your own TVM model from scratch. To deepen your understanding, avoid using Excel’s built-in TVM functions initially. Instead, manually calculate TVM components to gain a better grip on the concepts.

Also experiment with changes in:

  • Beginning/Ending of Period
  • PMT (Payment)
  • PV (Present Value) and FV (Future Value)
  • Number of Periods
  • Discount Rate

Focus first on the mathematical concepts and relationships. Once you have a solid grasp on the math, you can then apply it to financial contexts. Remember, the goal is to internalize the concept (as the optimal time to answer each number is ~1.5 min)This approach worked well for me and took about a week.

Hope this helps!

Best,
Bull & Bear Professor
The Market Wizard

Disclaimer: The information contained in this post is intended solely for informational purposes and does not constitute financial advice. The content presented herein reflects personal opinions and experiences. It is advisable to conduct thorough research and seek the counsel of a qualified financial professional before making any investment decisions or financial plans. Any reliance on the information provided is at the individual’s own discretion and risk.