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What are some of the assumptions behind the TVM calculations?

by | Feb 16, 2023 | Finance

by | Feb 16, 2023 | Finance

What are some of the assumptions behind the TVM calculations?

Q.1 What are some of the assumptions behind the TVM calculations? How do these assumptions limit our application of these calculations?
Q.2 write a reply for this article
Some of the basic assumptions behind the TVM is that, a dollar today is worth more than a dollar in the future.
TVM presume five variables namely, present value PV, Future value FV, number of period, interest rate and payments.
The assumptions behind the TVM follow that,
-Money is always productive and repeatedly invested 
– Short term interest rate are similar to line to long term interest rate, implying that the yield curve is flat
-Payment made are always equal can be classified all inflows or outflows
-The interest rate is stable throughout the time period
Limitation of the application of TVM
-We cannot always predict the future and be accurate about our forecasts in cashflows
-Many external factors can play spoilsport be it economic and political factors
-Citations of default risk where the lender may not be able to pay back to us  

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