Time value of money, is exactly how it sounds. Time can determine the value of your money in aspects of Present Value (PV) and Future Value (FV). Present value is what your money is worth at the present point in time that you acquire it. Future value is what your money will be worth if you accrue interest over time. Equations for both are as follows. FV= PV (1 + i) ^n, PV= FV (1+i) ^ -n. Examples of both; you get $15,000 now or $15,000 in three years. If you take the $15k now and put it away to gain interest at .056 (5.6%) the equation would follow as FV = $15,000 (1+.065)^1; interest accrued in first year would be $840 in the first year, bringing your FV=$15,840 after the first year. Second year; FV = $15,840 (1+.056) ^1; interest for second year is $887.04, bring your FV=$16,727.04, etc.... If you decided to take the money in three years, it would still be worth $15,000 seeing as no interest was gained on the money. PV works in reverse order. If you take the $15k in three years, it's present value wouldn't be $15k, the following equation shows why; PV = $15,000 (1+.056)^ -1, so at the end of the two year wait with interest you could have made, PV= $14,160, this continues in the same form just in reverse. So with time the value of money can change whether in the present or future.

References:

"Foundation of Financial Management" South University Online Lecture. Retrieved Jan.14th, 2011 from http://myeclassonline.com/re/DotNextLaunch.asp?courseid=4769451&userid=3511638&sessionid=2250615fb3&tabid=rc/eRJIF2T37mY2f45OqgzoznpJq6EQXcgS2OH7Miic=&macid=J+b0t7uQs/6VcpI2nF75/mxfUKTsvfi2W8kan2B0cSJ4ro4bF519Tt5mhp2PvMMdyFYLTnO/Nzu0yy7ruV14nrZjO8gYwKR5pDIKOu9o2DZUv24rstcr/UpThw5UUK6nqdSHvv0UXk/1hoR09gl2Id5tg1BHBk373P6ksFVhXN0=

“Understanding The Time Value Of Money” Investopedia, Retrieved Jan. 20th 2011 from

...TimeValue of Money
The timevalue of money (TVM) or, discounted present value, is one of the basic concepts of finance and was developed by Leonardo Fibonacci in 1202. The timevalue of money (TVM) is based on the premise that one will prefer to receive a certain amount of money today than the same amount in the future, all else equal. As a result, when one deposits money in a bank account, one demands (and earns) interest. Money received today is more valuable than money received in the future by the amount of interest we can earn with the money. If $90 today will accumulate to $100 a year from now, then the present value of $100 to be received one year from now is $90.
To fully understand timevalue of money one must first understand a few terms. Present value and future value are totally different. They also have their disadvantages and advantages; it just depends on how they are used. Of course, present value is what you have right now at this present time. While future value is the amount of money you will have at a given time in the future. Future value has a tendency to be deep;...

... This article will explain the financial concept of timevalue of money. The overview provides an introduction to the principles at work when money grows in value over time. These principles include future value of money, present value of money, simple interest and compound interest. In addition, other concepts that relate to factors that can impede the growth in value of money over time are explained, including risk, inflation and accessibility of assets. Basic formulas and tables have been provided to assist in calculating various formulations of timevalue of money problems. Explanations of common financial dealings in which the timevalue of money is an important consideration, such as annuities, loan amortization and tax deferral options, are included to help illustrate the concept of the timevalue of money in everyday life.
The timevalue of money is a fundamental financial principle. Its basic premise is that money gains value over time. As a result, a dollar saved today will be worth more in the future, and a dollar paid today costs more than a dollar paid later in...

...TIMEVALUE OF MONEYTimevalue of money is useful in making informed business decisions. For example the "net present value method" can be used to help decide the best alternative among multiple alternative uses of a firm or personal financial resources. By discounting various alternatives to their "present value" one can compare the alternatives. Timevalue of money can also answer such questions as what one's investment will be worth at a certain point of time in the future, assuming a certain interest rate. Timevalue of money can also be used to compute such useful information as car, mortgage and other loan payments. Another use of timevalue of money in accounting is reporting of certain long-term assets and liabilities.
Timevalue of money is based on the principle of compound interest. Each time there is a compounding period the new principal is increased by the interest from the previous period.
Converting Before Using the Tables
When using the tables, you may need to convert if, for example, in a lump sum situation there are more than one compounding periods in a year. Or you may need to convert (to monthly compounding) if, for...

...Abstract
In this paper, Team C will discuss the concept of the timevalue of money and the importance of this concept in business. Also, we will provide a demonstration of the use of the formula used to calculate the present and future values of money to get the present value of $100 using different periods of time and interest rates.
TimeValue ofMoney
In the world of business, it is essential to know what TVM represents and how it helps make better choices in how we spend our money. TVM is also known as TimeValue of money which is a given amount of interest earned in a period of time (Wikipedia, 2011). Each member in group “C” will use 100 as our present value and we will choose an interest rate and period. Timevalue of money concept is used to determine present and future values of money. “The timevalue of money refers to the relationship between time, money, and the rate of interest.” (Letsche, 2011). The formula consist of four components FV = Future Value, PV = Present Value, i = the interestrate per period and n= the number of compounding periods (TeachMeFinance.com)....

...TIMEVALUE OF MONEY
INTRODUCTION
This module or note is created to provide students with step-by-step explanation and discussion on timevalue of money that mainly based on formulas instead of timevalue of money tables. The reason is so that students are able to answer all sorts of questions that involve interest rates and time period that are not available in the tables.
OUTLINE OF THE NOTE
A. Simple Interest
B. Compound Interest
1. Single Amount
• Future Value
• Present Value
• Finding the time period
• Finding interest rate
• Effective annual rate (EAR)
• Continuous compounding
2. Multiple Cash Flows
i) Annuity
• The basics
• Future Value of Annuity
• Present Value of Annuity
• Finding the number of payments of an annuity
• Finding the interest rate
ii) Mixed Cash Flows
iii) Amortisation
C. Exercises
SIMPLE INTEREST
Simple interest is interest earned in each period on the original principal. The general formula for simple interest is as follows:
Simple interest, SI = P x i x t or SI = P x r x t; or simply
SI = Pit or SI = Prt
where, P is the principal amount, i or r is the simple interest rate and t is the time period in years. So, if the time period is 6 months,...

...
TimeValue Of Money
Rawand Ibrahim
Florida State College At Jacksonville
Dr. Daniel J. Mashevsky
FIN4501-Investment Management
Table of Contents
Introduction 2
Components of interest rate 3
Stocks and Bonds 4
Interest rate 4
Future Value 5
Determining Present Value 6
Conclusion 6
Reference: 7
Introduction
What is the timevalue of money? (Campbell Harvey, 2012) “Timevalue of money is initially defined as the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. In other words, the idea that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received”. In this paper we will discover what it means when people refer to time being money by learning to calculate the value of the present dollar as well as the value of the future dollar. Later, with examples, we will continue to find out exactly why interest is the foundation of timevalue of money.
Components of interest rate
(Business Dictionary, 2015) “A capital market is a financial market that works as a passage for...

...Chen Suiming
4385287
5.1 Money has a timevalue because a dollar in hand today is worth more than a dollar to be received in the future. This makes sense because if we had the dollar today, we could buy something with it or invest it and earn interest.
5.5 Compounding is the process by which interest earned on an investment is reinvested so that in future periods, interest is earned on the interest previously earned as well as the principal.
Discounting is the process by which the present value of future cash flows is obtained.
5.4 The future value equation is: FVn = PV * (1+i)n
Future value at the end of year 3 = $ 5000 * (1+0.105)3
= $ 6746. 163125
Alison Green can collect $ 6746.163125 in 3 years.
5.11 The present value equation is: PV = FVn(1+i)n
The loan = 7750(1+0.06)3
= 6507. 05
I am willing to lend my brother around $ 6507
5.15 According to the equation: PV = FVn(1+i)n
1+in = FVnPV
Therefore, 1+i2 = 15001300
(1 + i) = 1.074
i = 0.074 =7.4%
Because 7.4% > 6.5%, so I should go with bank.
5.27 According to the equation: FVn = PV * (1+i/m)m*n,
a. FV5 = 3500 * (1+0.089/12)12*5...

...Fin 3322
TimeValue of Money Homework
1. Your local travel agent is advertising an extravagant global vacation. The package deal requires that you pay $5,000 today, $15,000 one year from today, and a final payment of $25,000 on the day you leave two years from today. What is the cost of this vacation in today’s dollars if the discount rate is 6%?
2. The tax rates are as shown. Your firm currently has taxable income of $79,000. How much additional tax will you owe if you increase your taxable income by $30,000?
Taxable Income
Tax Rate
$ 0 - 50,000
15%
50,001 - 75,000
25%
75,001 - 100,000
34%
100,001 - 335,000
39%
3. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?
4. Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you today?
5. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn 4.5% on your money...

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