Time Value Of Money

The Time Value of Money (TVM) is the concept that money available today is worth more than the same amount in the future due to its earning potential. This principle is fundamental in finance and investing because money can grow through interest or returns on investments.

Key TVM Concepts
Present Value (PV) – The current worth of a future sum of money discounted at a given interest rate.

Future Value (FV) – The value of a current sum of money after it has grown over time due to interest or investment returns.

Interest Rate (r) – The rate at which money grows over time (could be simple or compound interest).

Number of Periods (n) – The number of time periods (years, months, quarters, etc.) over which interest is applied.

Payments (PMT) – Regular contributions or withdrawals in annuities.