Time Value of Money

The Time Value of Money or TVM states that the present value of a particular amount of money is always more than its future value. According to the time value of money concept, an investor likes to receive a particular amount of money today instead of receiving the same amount in the future.
The time value of money is that type of investment theory, which mentions that the value of money is more today compared to its value in the future because of inflation and other economic factors. The essence lies in the idea that the money, which an individual has with him is greater than the same amount of money which will be received in the future due to the reason that money is ready to be invested and it will bring in interest over time.

So the money has greater value the sooner it is received. If cash is received today instead of the future, the money can yield significant return if invested to any alternative option.

The future value refers to the amount of money acquired with the help of growth in investments in the long run bearing a particular interest rate.
It represents the value of money at a specific time in the future. On the other hand present value indicates to the value of a particular amount at the present time.

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Last Updated on : 26th June 2013