Time Value of Money

Time Value of Money (TVM)

The time value of money (TVM) is the basic concept in finance that holds that money in the present is worth more than the money that is expected to be received in the future. This is because money invested will give certain return, creating a larger amount of money in the future as interest is added to the sum of money invested at a certain rate of interest based on the risk profile of the investment.

Understanding this concept helps investors and corporates make a rational decision relating to their investments. In time value of money mathematics, one will learn two important concepts compounding value technique (future value technique) and discounting value technique (present value technique).

The Future value technique or compounding technique will help understand future value (FV) given the present money and present value (PV) technique or discounting technique helps us in understanding present value of money given future money.

In most of the cases in finance, we will be perplexed with a situation where we will be dealing with present cash outflows and future cash inflows. Understanding the time value techniques will help the finance manager to make appropriate decision concerning cash inflows.

The time value techniques will help managers in taking prudent decisions relating to financing, investment and dividends.

Welcome to this wonderful course on TVM and hope this course will give strong foundation in the subject of finance.