This example illustrates accumulation to a target price with interest worked in.!
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Let's put this theory to practice. Suppose your Visa bill is $2000, the interest rate is 2%, and you can only pay 50$ a month, how long would it take to payoff the bill?

The first step is to define the " numbers" to plug them into the calculator.

I/Y is 2 (the calculator reads in the percentage!)
PV=-2000 (it is negative but you spent it)
PMT=50 (payment is 50 dollars a month
FV=0 (we want to pay everything back so the future value is 0)
Now all we have to do is compute (CPT) the period (N)

Using the BA II Calculator, we plug in the numbers as : -2000 PV, 2 I/Y, 50 PMT, 0 FV. Then to find the answer: Press CPT and then N. Voila. N is equal to 81.274 (Months not years)! that is a long time to pay off a bill.

Of course, there are variation of the examples, but the gist of the concepts has been explained.

So what is time value of money in laymen terms? In finance, money is perceived as more valuable today then it is in the future. As an example, a dollar today, does NOT have the same VALUE ten years from now. Imagine how much it costs to buy a hamburger 10 years ago versus today. You can think of time value of money another way, 1 dollar will be 1.20 if the interest rate is twenty percent in a year. Interest, inflation, economy may affect the value of money. Generally, this term is referred to as TVM and can be easily calculated through a business calculator. On a calculator, there are 6 buttons that are used for TVM calculations (the labels in the calculator may vary, but the functions are essentially the same). They are: PV, PMT, FV, I/Y, N and CPT.

PV= Present Value
PMT= Payment
FV= Future Value
I/Y= Interest
N= Period

There you have it. See the next posts for examples.