Page 1
“Time value of money”
Page 2
“Time value of money”
? 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.
? Time Value of Money (TVM) is an important concept in
financial management. It can be used to compare investment
alternatives and to solve problems involving loans, leases,
savings.
Introduction.
Page 3
“Time value of money”
? 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.
? Time Value of Money (TVM) is an important concept in
financial management. It can be used to compare investment
alternatives and to solve problems involving loans, leases,
savings.
Introduction.
? TVM help us in knowing the value of money invested. As time
changes value of money invested on any project/ firm also
changes. And its present value is calculated by using
“mathematical formula”, which tell us the value of money with
respect of time. i.e.
Cont..
Page 4
“Time value of money”
? 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.
? Time Value of Money (TVM) is an important concept in
financial management. It can be used to compare investment
alternatives and to solve problems involving loans, leases,
savings.
Introduction.
? TVM help us in knowing the value of money invested. As time
changes value of money invested on any project/ firm also
changes. And its present value is calculated by using
“mathematical formula”, which tell us the value of money with
respect of time. i.e.
Cont..
? There are certain reason which determine that money has time
value following are the reason;
1. Risk and Uncertainty – As we know future is never certain
and we can’t determines the risk involved in future because
outflow of cash is in our hand as payment where as there is no
certainty for future cash inflows.
2. Inflation - In an inflationary economy, the money received
today, has more purchasing power than the money to be
received in future. In other words, a rupee today represents a
greater real purchasing power than a rupee in future.
Reason for Time value of Money.
Page 5
“Time value of money”
? 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.
? Time Value of Money (TVM) is an important concept in
financial management. It can be used to compare investment
alternatives and to solve problems involving loans, leases,
savings.
Introduction.
? TVM help us in knowing the value of money invested. As time
changes value of money invested on any project/ firm also
changes. And its present value is calculated by using
“mathematical formula”, which tell us the value of money with
respect of time. i.e.
Cont..
? There are certain reason which determine that money has time
value following are the reason;
1. Risk and Uncertainty – As we know future is never certain
and we can’t determines the risk involved in future because
outflow of cash is in our hand as payment where as there is no
certainty for future cash inflows.
2. Inflation - In an inflationary economy, the money received
today, has more purchasing power than the money to be
received in future. In other words, a rupee today represents a
greater real purchasing power than a rupee in future.
Reason for Time value of Money.
3. Consumption - Individuals generally prefer current
consumption to future consumption.
4. Investment opportunities - An investor can profitably use
the received money today to get higher return tomorrow or
after a certain period of time.
e.g.- if an individual is given an alternative either to receive
Rs.10,000 now or after one year, he will prefer Rs.10,000 now.
This is because, today, he may be in a position to purchase more
goods with this money than what he is going to get for the same
amount after one year.
Cont..
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