TVM: Present Value and Future Value – Compounding and Discounting Explained

We've established why time has value and how interest works. Now it's time to do the math. In this episode, we work through the two fundamental TVM calculations: compounding a present value forward into the future, and discounting a future value back to today. We build both formulas from first principles so the logic is clear — not just memorized. We cover: • Compounding — how a present value grows into a future value when interest is applied over multiple periods • The general compounding formula: FV = PV × (1 + r)^n — and the step-by-step logic behind it • Discounting — the reverse process: taking a future cash flow and calculating what it's worth in today's dollars • The general discounting formula: PV = FV ÷ (1 + r)^n — and why it's just compounding in reverse • How to solve for any missing variable — present value, future value, rate, or time — when the other three are known By the end of this video, you'll understand: • How to compound any lump sum forward to a future value at a given rate and time period • How to discount any future cash flow back to its present value • Why these two formulas are the foundation of every other TVM calculation in this series • That the goal isn't formula memorization — it's understanding how cash grows and shrinks over time Next, we'll extend these concepts from a single cash flow to a series of equal cash flows — introducing annuities and the shortcuts that come with them. 👉 Visit us at intellicasts.com to explore more resources and courses.