Time Value Of Money Definition

The time value of money is the concept that money today is worth more than the same amount of money in the future. This is because money can be invested and earn interest, so the longer you have to wait for something, the more it will cost.

The time value of money is used in many financial calculations, such as annuities, mortgages, and investments. It’s also important to understand when making personal decisions about saving and spending.

For example, let’s say you have $100 today and you want to buy a new TV that costs $200. You could wait a year and save up the $200, or you could take out a loan and pay it back over two years with interest. In this case, it would be cheaper to wait and save up the money since you would avoid paying interest on a loan.

However, there are some cases where it makes sense to spend money now even though you will have to pay more in the future. This is because of the opportunity cost of not having access to that money in the meantime.

For example, let’s say you have $1,000 today and you want to buy a new car that costs $10,000. You could wait a year and save up the $10,000, or you could take out a loan and pay it back over five years with interest. In this case, it might make sense to take out