Using a Timeline to Solve Time Value of Money Problems

When solving a time value of money problem, it is sometimes easy to draw a timeline to present the cash flows on it. Once we have the timeline, we can easily understand the variables and visualize the present value or future value calculations.

In the previous pages, we demonstrated the time line for an ordinary annuity and for uneven cash flows.

Let’s take one more example to demonstrate the use of a time line.

Example: Loan Payments

You have taken a loan of $10,000 at an annual interest rate of 12% for a period of 2 years. Calculate the monthly payments you will make on this loan.

The payments (PMT) or Equated Monthly Instalments will be paid monthly for the next 24 months.

The above problem can be demonstrated on a timeline as follows:

Calculator Usage
To calculate the monthly payment:
Set compounding frequency to 12 (P/Y)
PV = 10,000
I/Y = 12
N = 24
PMT = 470.735

Related Downloads

Data Science in Finance: 9-Book Bundle

Data Science in Finance Book Bundle

Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.

What's Included:

  • Getting Started with R
  • R Programming for Data Science
  • Data Visualization with R
  • Financial Time Series Analysis with R
  • Quantitative Trading Strategies with R
  • Derivatives with R
  • Credit Risk Modelling With R
  • Python for Data Science
  • Machine Learning in Finance using Python

Each book includes PDFs, explanations, instructions, data files, and R code for all examples.

Get the Bundle for $29 (Regular $57)
JOIN 30,000 DATA PROFESSIONALS

Free Guides - Getting Started with R and Python

Enter your name and email address below and we will email you the guides for R programming and Python.

Data Science in Finance: 9-Book Bundle

Data Science in Finance Book Bundle

Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.

What's Included:

  • Getting Started with R
  • R Programming for Data Science
  • Data Visualization with R
  • Financial Time Series Analysis with R
  • Quantitative Trading Strategies with R
  • Derivatives with R
  • Credit Risk Modelling With R
  • Python for Data Science
  • Machine Learning in Finance using Python

Each book comes with PDFs, detailed explanations, step-by-step instructions, data files, and complete downloadable R code for all examples.