Time value of money (TVM),
Definition of Time value of money (TVM):
Price put on the time an investor or lender has to wait until the investment or loan is fully recouped. TVM is based on the concept that money received earlier is worth more than the same amount of money received later, because it can be employed to earn interest over time. Computed as compound interest.
The time value of money draws from the idea that rational investors prefer to receive money today rather than the same amount of money in the future because of money's potential to grow in value over a given period of time. For example, money deposited into a savings account earns a certain interest rate and is therefore said to be compounding in value. .
The time value of money (TVM) is the concept that money you have now is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also sometimes referred to as present discounted value.
How to use Time value of money (TVM) in a sentence?
- The number of compounding periods during each time frame is an important determinant in the time value of money formula as well.
- Being able to wisely spend the time value of money will help your business run much more efficiently and smoothly.
- Depending on what your current finances are a stock may not be worth the time value of money if you cant afford to wait.
- Time value of money is based on the idea that people would rather have money today than in the future.
- Given that money can earn compound interest, it is more valuable in the present rather than the future.
- The formula for computing time value of money considers the payment now, the future value, the interest rate, and the time frame.
- His broker was very excited about the latest money-making opportunity, but Clifford was an impatient man and wondered if it made sense for him in terms of the time value of money attributable to him.
Meaning of Time value of money (TVM) & Time value of money (TVM) Definition