Time Value of Money in Finance – Module 2 – Quantitative Methods – CFA® Level I 2026
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0:00 Introduction: Why Time Value of Money (TVM) Matters
Overview of TVM and its significance
Why “a dollar today” is more valuable than “a dollar tomorrow”
0:53 TVM in Action: Bonds & Fixed Income Instruments
How timing of cash flows affects bond valuation
Role of the discount rate in present value calculations
1:47 Present Value, Future Value & Interest Rates
Basic formula (FV = PV × (1 + r)ᵗ)
Continuous compounding and exponential growth
2:43 Types of Fixed Income Instruments
Discount Instruments (bought below face value)
Coupon Bonds (periodic payments + face value at maturity)
Annuity Instruments (regular, uniform payments)
Special mention: Perpetual bonds and their valuation
5:06 Equity Instruments & Stock Valuation
Stocks as ownership vs. bonds as loans
How dividend payouts and growth factor into equity pricing
5:37 Three Dividend Discount Models (DDMs)
Constant Dividend (like a perpetuity)
Constant Growth (Gordon Growth Model)
Changing Growth Rate (two-stage or multi-stage models)
7:11 Implied Return & Yield to Maturity (YTM)
How bond prices reflect the market’s return expectations
Determining YTM from current price and future cash flows
8:00 Discount Bond Example & Holding Period Return
Real-world scenario: French zero-coupon government bond
Price change over time and its effect on implied annual yield
9:56 Implied Return for Stocks & PE Ratios
Required return = dividend yield + growth rate
PE ratio and its relationship to growth, dividends, and returns
12:40 Cash Flow Additivity Principle
Summing the present values of individual cash flows
No-arbitrage condition in bond pricing and forward rates
13:01 No-Arbitrage Example in FX & Forward Rates
How currency forward rates prevent risk-free profit
Ensuring equal returns whether investing at home or abroad
15:44 Option Pricing & Replicating Portfolios
Using cash flow additivity to price call options
Hedge ratio and creating no-arbitrage option prices
17:36 Conclusion & CFA Exam Tips
Key takeaways on TVM for bonds, stocks, and derivatives
Importance of practice problems for mastering valuation concepts
Final words of encouragement for your CFA journey