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• How are present and future values dependent on interest rates? explain in details

• How are present and future values dependent on interest rates? explain in details

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Time Value of money concept posits that , a dollar today is worth more than the dollar tomorrow due to its potential capacity for earnings. This concept says that any amount is dollar is worth today provided the money earns interest. Present value is the sum of discounted future cash flows. The discount rate is normally the opportunity cost of capital and this opportunity cost of capital is generally the interest rate on an opportunity. Future value of the investment is the cumulative future values at a particular time, where the investment is compounded at a suitable reinvestment rate which is again dependent on the interest rates.

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