Why is the time value of money concept important? In what quantitative decisions might the time value of money be used? How do you apply the time value of money concept to make decisions in your personal life?

The idea of the time value of money is important because of the fundamental assertion that one would rather have X number of dollars now, than later. If the money is taken later a value of X+i is preferred. This concept is applied to all situations where someone uses the monies of another for some duration of time and is expected to return the money. This is used in loans, savings accounts, investments, annuities, etc... I apply the time value of money in my personal life in many ways. I calculated out a couple payment options for the new vehicle I purchased this year to see which one cost the least in the end. I also had to figure out how much I had to put in my sons’ college savings fund so it would be worth a certain amount when they turn 18. That was just this year. This concept is widely used in important areas of our personal finances.

How might you use the Time Value of Money concept as a quantitative reasoning tool in business?
In business you need to take out loans to expand or in times of shortage. It is important to understand the risk of those loans and exactly how much needs to be paid and when. Sometimes businesses give loans to their customers. At my company we sell a product that is so expensive that companies sometimes have to obtain different loans from different banks to purchase different sections of an airplane. So we give some loans to our customers so they can afford our product. We have to be able to calculate the rates we charge so that we don’t over burden the customer and so we don’t end up with money that isn’t worth what it would of been the day we sold the plane. Then it would be like giving a discount.

The formula to calculate the value of $1 put into savings today is fv = pv*((1+i)^n). The variables...

...Finance21
Prof. Khen Enriquez
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...

...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 of Money
In the world of business, it is essential...

...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. Time...

...Introduction
The timevalue of money is an important concept in financial management. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities. The timevalue of money can be defined as the value of money received today instead of in the future. This is based on the premise that cash in hand today is more...

...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....

...TimeValue of MoneyTimevalue of money is an amount of money available today can be safely invested to accumulate to a larger amount in the future.
Present value- an amount of money available today.
Future amount-amount receivable/payable at a future date
Relationship Between Present Values and Present Values
The difference...

...TimeValue of Money
As the name suggests it implies money valued with reference to time which may be present or future. “Time” allows the prospect to earn interest and defer consumption.
Present Value (PV) – it means the current value of money in future measured at a particular interest rate.
Future Value (FV) – it means the value of...

...TimeValue of Money (TVM), developed by Leonardo Fibonacci in 1202, is an important concept in financial management. It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities.
TVM is based on the concept that a dollar today is worth more than a dollar in the future. That is mainly because money held today can be invested and earn interest.
A key concept...

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