The Biggest Mistake Students Make With Time Value of Money

Have you ever stared at a Time Value of Money problem and felt like you were reading another language? You aren't alone. Let's break down exactly why this trips up so many students.

Did you make this error?

• The Trap: adding cash flows from different years together
• The Proof: Read this scenario: You cannot add $100 today to $100 next year. Because of inflation and interest, you must discount future cash flows back to Present Value before doing any math.

If your logic doesn't match the proof above, you've fallen for the trap. Erase it and start over.

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