Time Value of Money
The time value of money is an important concept in finance. It refers to the idea that the value of money changes over time due to its potential earning capacity.
 Interest
Interest is what a borrower pays to a lender for the temporary use of the lender’s money.
The principal is the original amount of money borrowed or invested.
 Simple Interest
Simple Interest is calculated using the formula: $$$$
$A = P(1 + rt)$where:

 $A$ = Future Value
 $P$ = Principal
 $r$ = Simple Interest Rate per Year
 $t$ = Time in Years
 Compound Interest
Compound Interest considers interest on both the initial principal and the interest accumulated over previous periods: $$$$
$FV = P(1 + i)^{mt}$where:

 $FV$ = Future Value
 $P$ = Principal
 $i$ = Interest Rate per Period
 $m$ = Number of Compounding Periods per Year
 $t$ = Time in Years
 Equivalent Annual Rate (EAR)
The Equivalent Annual Rate (EAR) is the interest rate compounded annually that yields the same amount as a nominal rate with a different compounding period.
 Annuities
An annuity is a series of equal payments made at regular intervals.

 Ordinary Annuity: Payments are made at the end of each period.
 Annuity Due: Payments are made at the beginning of each period.
 Amortization and Depreciation
Amortization: Gradual reduction of a debt by regular payments over a specific period.
Depreciation: The reduction in the value of an asset over time.