Time Value of Money ppt

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What is the ‘Time Value of Money – TVM
The time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also referred to as present discounted value. Calculations involving the time value of money allow people to find and compare the value of future payments. To do this, five figures come into play: interest rate, number of periods or number of times interest or dividend payments are made, payments, present value and future value. Formula involving these figures answer questions such as how much would you have to deposit now to have $10,000 in six years if the interest rate is 7 percent.

The time value of money is one of the basic theories of financial management. The theory of states that the value of money you have now is greater than a reliable promise to receive the same amount of money at a future date. This may sound simple, but it underpins the concept of interest, and can be used to compare investments, such as loans, bonds, mortgages, leases and savings.

This overview covers an introduction to simple interest and compound interest, illustrates the use of time value of money tables, shows a matrix approach to solving time value of money problems, and introduces the concepts of intrayear compounding, annuities due, and perpetuities. A simple introduction to working time value of money problems on a financial calculator is included as well as additional resources to help understand time value of money.

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