Question

What is time value of money? What problems may arise if time value of money is not taken into consideration while making transactions? Explain theoretically how can these problems be dealt with?

Answer 1

The time value of money concept is very important for investers. For example you have some amount with you today, and you can earn returns with proper investment of that amount over the period. On the other hand if i promiss you to give the same amount after 2 years, that's a clear loss. You can't increase that money if it's not in your hand at the right time. So time value of money becomes very imp.

Despite its Importance, the TVM value concept renlains to be very complex, considering the decision making and the calculations involved.

Avoiding the TVM concept may lead to huge losses. All these problems can be overcome only with the correct decision making on the correct time in order to increase the returns. The market understanding of banker, the inflation rate, the compounding rate are some various factors by which we can deal with the problems arising due to TVM problems.