foreign [Music] business and commerce hi my dear students in this video I want to explain about the time value of the money basically the time value of money speak about what is the value of money at a present date and what would be that value in the future date so the time value of money is the most important Concept in engineering economy that means if you want to invest in certain sectors and what you will be get return after a future after a certain time period and all banks all firms making use of investment of fund to get a return and to get maximum return on in their future time investment are expected to earn a return everybody's are investing their savings and their available fund to get a expected and better return the objective is that to get the return everybody's at go for the investment and money poses a time then every every fund that have some time now that means if you want to invest 100 rupees nowadays then what you will get in the future so that traveling time period is what that is called time value suppose we are investing rupees 100 nowadays and we are getting 110 rupees after one year that means value of that one year is 10 Rupees that means we got the return on at the rate of 10 percent so time value is 10 percent are in the present situations basically the time value of money are utilized in many sector to find out the future value and present value if we are investing today then what we will get tomorrow that we should have to calculate by the concept of time value of money here four sectors has given where you have to utilize the time value of money and you have to use this concept to take the decisions so these four financial decisions are there first one is your investment option comparison when you are investing into a option uh then how you will get comparize all the aspects of that options and that should be utilize the concept of time value of money then the next one is best investment proposal selection while you are in selecting a investment proposal then also you have to follow the concept of time value of money then the next is your determining interest rate while you are determining the interest rate and what you are getting as a return and what is the value against that interest rate position of investment that also you can take the decision which interest rate is favorable for your decisions and then the last one is Wages fixation how much wages you have to pay okay to your service providers or to your workers or Executives uh to carry out your business plan that also be fixed fixed by the time value of money under time value of money there are two concept one is compounding and another is discounting when present value is given and you want future value so you have to follow the compounding process for example Mr X deposited rupees 1 lakh on 2022 that means in present time Mr X invested 1 lakh rupees and what amount he will get in future suppose that future time period is 5 year what he want to get after five year that value we should calculate today by the process of compounding okay and that value which will be determined for the future time after five year that is called your future value and the next example is your discounting when future value is given and you have to calculate present value that process is called discounting for example if you want to get rupees 10 lakh after three year okay want to get 10 lakh 10 lakh amount you want as a return after three year that 10 lakh is your future realm that is given in the question okay and now you have to determine that how much amount we have to invest today to get that 10 lakh after three year so that process is called a discounting process under discounting process you have to calculate what is the value of what today's investment so that investment value which you want to determine and presented that is called present value okay in this way the you will determine the present value and future value let us discuss the compounding process take an example here present value is given and we have to calculate future value Mr X invested rupees one lakh as a present value that means Mr X invested rupees 1 lakh today and the rate of interest is 11 percent per annum and your time period is after five year how much Mr X will get after five year that means you have to calculate what is the future value after five year that you want to calculate by calculate future value future value equal to present value into future value interest Factor so this future value interest factor is ultimately known as your compounding okay so it is ultimately known as your compounding so what is the formula then present value into this can be you can write that to the future value in place of future value that is 1 plus your interest to the power n that means here future value is how much future value is your present value is 1 lakh rupees the total investment of present value is 1 lakh rupees and into one plus what is the interest rate interest rate is 11 so you have to write the interest like this 0.11 whole to the power time period is 5 years so you have to take like this then you have to take the present value of 1 lakh and find out these things through the calculator okay so I will show you this calculation through the so here this portion is very important thing to you understand how to calculate so because it is a power item so we have to calculate these things through the calculator so it is very simple to calculate in the calculator so here 1 plus 0 1 1 so the total figure is 1 plus 1 is 1.11 whole to the power 5 okay so how to calculate this portion in this okay okay in the calculator so that we will understand here so present value is 1 lakh and what is the value of this future value interest Factor future value interest factor which is given here that should be calculated by this how to calculate it so in calculator first you have to click clear then you have to press one point one one this is one point one one that means one plus eleven percent okay so then press into bottom two times one two okay then you have to press equal to button this is second year interest Factor this is second year interest factor and first year interest factor is 1.11 this is the first year interest factor and the second year instant factor is this because we have traced uh two times the into button so this is second year third year fourth year fifth year so what is the figure this figure is 1.685 then after zero five eight the next three digit is after six eight five the next three residents zero five eight that means there is more than five so we have to take it at the round round of figure that is 1.686 so future value factor is 1.686 okay then multiply this figure the one lakh into how much 1.686 so your result is 1 lakh sixty eight thousand six hundred you will get the future value after five year is this much 1 lakh 68 000 600 is the future value then the next example is discounting process discounting process means here the future value is given and you have to calculate present value let us understand the calculation of present value through an example Suppose there is a person Mr X and Mr X wants to get a return okay Mr X wants to get a return of rupees 10 lakh where the interest rate uh interest rate is eight percent per annum okay the interest rate of return is eight percent per annum and the time which you want to take that is five year that means Mr X wants a return of 10 lakh at the rate of 8 percent interest after five years then we have to calculate the present value that means how much we want to invest today forget the 10 lakh return after five you are at the rate of eight percent interest that we want to calculate here so that is called the calculation of present value when future value and interest factor is given let us solve the problem so in this question future value 10 lakh that is given in the questions okay so the formula of calculation of present value equal to future value future value into present value interest factor and this present value interest factor is ultimately called as your discounting discounting and then you have to put the value of future value future value amount is already given in the question that is your 10 lakh then and Present Value interest Factor formula is 1 divided by 1 plus I equal to the power n so this is the formula of present value interest Factor then 10 lakh the value of future value which is given in the question that into the value of this that means 1 divided by 1 plus I and I stands for what how many percent 0.08 percent okay that means eight percent eight percent can be written as 0.08 so whole to the power time is 5pr and the total figure is 10 lakh into this present value factor and this is the main important thing which you have to calculate through the calculator so let us see what is the result of 1 divided by 1 plus 0.6 so this should be calculated through the calculator like this first press on button okay and everything should be cleared then you have to press 1 divided by 1.08 1.08 that means again I am repeating 1 divided by 1.08 okay so 1.0 it is the figure okay then you have to press equal to a term and you get the first year present value Factor then second year third year fourth year fifth year so fifth year figure is 0.680583 that means you will take the round of figure 0.6 eight one okay so the present value will be 10 lakh into 0.681 so the total figure is 6 lakh 81 000 this is your present value that means if you invest 6 lakh 81 000 today then you get after five year the future value of amount 10 lakh that is the answer thank you my dear student I hope this video will help you for enhancing your ability and skill thank you thank you my dear student