 # Time Value of Money

Knowledge Center

## Summary, forum, best practices, expert tips and information sources.

11 items • 15.771 visits

 Summary

### What is the Time Value of Money? Meaning.

The Time Value of Money is the fundamental financial concept that an amount of money in hand today is worth more than the same amount of money in the future. This is caused by the return that you could earn on investing the money or simply placing it in a bank account and receive interest.

Time allows one the opportunity to postpone consumption and earn interest. Not having the opportunity to earn interest on money is called Opportunity Cost.

There is also a risk factor included in the term, because \$100 today is more certain than \$100 in a year from now.

### Examples of Time Value of Money

The Future Value of an amount PV in n years with interest rate r can be calculated as follows: FV = PV x (1 + r)n

Example. How much will €100 be worth in 2 years, presuming an interest rate of 4%?  FV = €100 x (1 + 0,04)2 = €108,16

The Present Value of an amount FV in n years from now with interest rate r can be calculated as follows: PV = FV x 1 / (1 + r)n

Example. How much is €100 in 2 years worth now, presuming an interest rate of 4%?  PV = €100 x 1 / (1 + 0,04)2 = €95,20

 Special Interest Group
 Time Value of Money Special Interest Group.
 Forum Time Needed to Double your Money How long does it take approximately to double \$9,000 at a compound rate of 8% per year?... 3 2 comments
 🔥 Valuing Stocks Using Dividends: The Dividend Discount Model The value of a stock in its simplest sense is the present value of the cash flow expected to be provided by that stock (plus any increase of the share price). The dividend discount model, a formula u... 2 Start a new topic about the Time Value of Money
 Best Practices

The best, top-rated topics about the Time Value of Money. Here you will find the most valuable ideas and practical suggestions.

 Expert Tips
 Information Sources
 Various sources of information regarding the Time Value of Money. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops. News Videos Presentations Books Academic More

 Special Interest Group Do you know a lot about the Time Value of Money? Become our SIG Leader and gain worldwide recognition as an expert.