Question

Time Value Money Ice Breaker Discussion Please take a moment to click on "Time Value money" topic and and share your understanding to that concept with the class.

Answer 1

TIme value of money concept states that the value of dollar to be received now in the present is more than the value of dollar to be received in future,. This is due to potential earning capacity of money as money can earn interest. Some of the basic concepts used in time value of money are as follows:

1. Present Value - When future payments are discounted at a given rate of interest upto the present date , the resulting value is called as time value of money.

2. future value - It is the amount obtained by enhancing the present payments to future value at a given rate of interest.

3. Interest - It refers to the charge that a borrower has to pay the lender for using the money lent.

This concept has many important applications as it can be used to compare the worth of cash flows occuring at different points of time in the future, to find the present value of money and also to compute the investment needed in present to generate the required sum in future.