What Is The Time Value Of Money?
Answers
The time value of money is the greater benefit of receiving money now rather than an identical sum later. It is founded on time preference.
The time value of money explains why interest is paid or earned: Interest, whether it is on a bank deposit or debt, compensates the depositor or lender for the time value of money.
It also underlies investment. Investors are willing to forgo spending their money now only if they expect a favorable return on their investment in the future, such that the increased value to be available later is sufficiently high to offset the preference to have money now.
Answer:
Time value of money is a concept evaluating the value of money at present compared to its future value. It concludes the value of present money more than its future value due to its potential earning capacity. According to this principle, the net worth of an amount is more today as compared to its value tomorrow. This concept dramatically emphasizes the importance of time associated with determining the worth of money. The primary reasons for this variation in the value of money are inflation and possible earning capacity. Thus, in finance, an amount in the hands today can generate interest contributing to its higher present value more than the future. For example, the value of a dollar yesterday was more as compared to today; and the value of a dollar today is more than its value tomorrow.