Here’s something most CFA Level I candidates realize too late: you can’t escape Time Value of Money.
You might think it’s just another topic in Quantitative Methods — something you’ll study, solve a few questions on, and move on. But that’s not how it works.
TVM is the backbone of the entire CFA curriculum.
It appears in:
- Quantitative Methods
- Fixed Income
- Equity Valuation
- Corporate Finance
- Portfolio Management
- Derivatives
- Financial Statement Analysis (FSA)
Every valuation concept is built on Present Value (PV) and Future Value (FV).
And here’s the real advantage: TVM questions are formula-based, which means:
- higher accuracy
- higher scoring probability
- higher ROI
As I always tell students:
“If there’s one concept you need to nail perfectly, it’s TVM. Once TVM makes sense, everything else starts falling into place.”
This blog breaks TVM down the way I teach it inside the classroom — clear, structured, and exam-focused.
Understand the Core — What Time Value of Money Really Means
Time Value of Money means: money today ≠ money tomorrow.
₹100 today is worth more than ₹100 a year from now because you can invest ₹100 today and earn returns. That difference is the “time value.”
If ₹100 grows at 10% annually, in one year it becomes ₹110.
That’s your Future Value.
If someone promises to pay you ₹110 next year, discounting it back at 10% tells you it’s worth ₹100 today.
That’s your Present Value.
This logic is everywhere — bonds, equities, retirement planning, loans, EMIs, DCF, IRR, everything.
The CFA exam isn’t testing formulas — it’s testing whether you understand when to discount, when to compound, and how to think in cash-flow terms.
The 5 Essential TVM Variables You Must Know
N – Number of periods
I/Y – Interest rate per period
PV – Present Value
PMT – Recurring payment
FV – Future Value
The most common trap?
Sign convention.
- Money you invest → negative
- Money you receive → positive
Get this wrong once, and the whole answer collapses.
Also understand when PMT = 0 (lump-sum cases) and when it’s not.
Must-Know TVM Formulas for CFA Level I
- FV (single cash flow):
FV = PV × (1 + r)^N - PV (single cash flow):
PV = FV / (1 + r)^N - FV of ordinary annuity:
FV = PMT × [(1 + r)^N – 1] / r - PV of ordinary annuity:
PV = PMT × [1 – (1 + r)^–N] / r - PV of perpetuity:
PV = PMT / r - PV of growing perpetuity:
PV = PMT / (r – g) - PV of growing annuity:
PV = PMT × [1 – ((1 + g)/(1 + r))^N] / (r – g)
Even though you won’t manually compute most of these in the exam, knowing them conceptually helps you avoid silly mistakes.
TVM Applications Across the CFA Curriculum
- Discounting cash flows (DCF, NPV)
- Bond pricing and yield
- Dividend discount models
- Free cash flow valuation
- Retirements and loans
- Portfolio compounding
Master TVM once → Score in multiple topics.
How to Use the CFA Calculator for TVM (BA II Plus / HP12C)
Step 1 — Clear TVM Memory
[2nd] → [CLR TVM]
Step 2 — Check mode (END/BEGIN)
For most CFA questions, you’ll be in END mode.
Check using:
[2nd] → [BGN] → [2nd] → [SET]
Step 3 — Input the variables
Enter:
N → I/Y → PV → PMT → FV
(With correct sign convention.)
Step 4 — Solve using CPT
Press
[CPT] → whatever you’re solving for (PV, FV, I/Y, etc.)
Most Common Mistakes CFA Level I Students Make in TVM
- Wrong sign convention
- Using annual rate instead of period rate
- Forgetting compounding frequency adjustments
- Using formulas when the calculator is faster
- Not clearing old TVM memory
A surprisingly large chunk of TVM errors come from calculator misuse — not concept gaps.
High-Yield Practice Questions You Must Solve
- Single cash flow PV/FV
- Loan amortization
- Bond yield problems
- Growing annuities
- Multi-step cash flows
Do at least 50–100 TVM problems before the exam.
Speed + accuracy = big scoring advantage.
Quick Revision Summary — TVM in 60 Seconds
- PV = FV / (1 + r)^N
- FV = PV × (1 + r)^N
- Know N, I/Y, PV, PMT, FV
- Clear calculator memory
- Adjust for compounding frequency
- PMT = 0 for lump sum questions
- END vs BEGIN matters
Final Words
Master TVM → You understand valuation.
Master valuation → You understand finance.
If you get TVM right, the exam becomes easier — not harder.
This is exactly why choosing the right guidance matters. If you’re looking for structured support, expert mentorship, and focused practice, explore our CFA classes in Mumbai designed to help you build strong fundamentals from day one.
Take the time to practice, use your calculator correctly, and strengthen your core concepts early.
FAQ
Yes. TVM is one of the most high-weight and frequently applied concepts across multiple CFA subjects.
You can expect around 6–10 questions directly or indirectly based on TVM.
Most candidates prefer the BA II Plus because it’s fast and easy for exam-style TVM problems.
Wrong sign convention and not adjusting for compounding frequency.
If you’re preparing for CFA Level I, Our CFA classes in Mumbai teach TVM using real exam-style questions, efficient calculator shortcuts, and a clear step-by-step method to improve accuracy.