Question

What is the concept of time value of money?

Answer #1

Time value of money simply states that the value of money received today is greater than the same sum received in future due to its opportunity costs in the form of its usability or its appreciation due to addition of interest earned on it.

For example - you have 2 options , get $100 today or $100 dollar an year later. What will you prefer?

$100 received today can be invested in savings account at around 8 percent annual interest and will be valued at $108 one year later whereas the 2nd option will give only $100 which makes sense to go by 1st option

FV = PV (1+R) ^T

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