Time Value of Money

Time value of Money Formula

Now taking these general examples to the financial terms, the money you have right now is the present value (PV), the money worth after a specified period is the future value (FV), and the rate the PV increases per year is the Interest rate (I). The formula for the time value of money becomes:

Time value of money in other domains

Financial Management: The notion of time value in the domain of financial management has great significance. Money that investors have on hand today can value more than the same money promised in the future. The money promised for the future has no worth because of the risk of inflation, whereas the existing money can earn interest and has more gain. So, it is better to have money now rather than future.

Conclusion

Every person and company has financial goals and requirements. Setting manageable targets after defining these priorities helps you to consider these goals from a financial standpoint. The time value of money shows that the money you have now is not the same as the money you will have in the future. When deciding between the prices of assets that yield returns at different times, the significance of the time value of money is factored in.

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Hiba Rajput

Hiba Rajput

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I’m a technical content writer with over 2+ years of experience. My love for writing has compelled me to write on diverse topics, especially on Tech. Follow me!