# Time Value of Money, a Financial Management Concept

The time value of money (TVM) is a financial management concept used in comparing investment alternatives, which facilitates problem solving with regard to loans, mortgages, leases, savings and annuities. TMV has two specific components, future value and present value. Each component can aid an investor in deciding whether to borrow money, buy a house, rent office space, save money or purchase an annuity. In addition to the primary components of future value and present value, TVM has other components such as interest (simple and compound) number of period (years) and payments. Future value (FV) is determined by measuring the value of a face value amount that grows at certain percentage rate over a period of time. The formula for calculating future value is: FV=PV(1 + i)- using Block and Hirt’s (2005) example on page 240, chapter 9 the following would be true: An investor has $1000 and wants to know what that $1000 will be worth over the course of four years at an interest rate of 10% annually. The future value would be determined accordingly- 1st year $1,000 * 1.10= $1,100

2nd year $1,100*1.10=$1,210

3rd year $1,210 *1.10=$1,331

4th year$1,331 * 1.10=$1,464

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