Time Value of Money

Time value of money is one of the most important concepts in mathematics, also widely used in real life finance and economical scenarios. Time value of money is taught sometime in high school mathematics that plays a major role in the practical life. Let’s discuss about the same in this post.

What is Time Value of Money or TVM?
Time value of money is popularly abbreviated as TVM. The concept of Time value of money defines that the value of money keeps changing with time. Most of the time, the value of money today is lesser than the value of money tomorrow. For example: The popular parenting magazine cost was Rs.50 till last year. Today, the cost of the same parenting magazine is Rs.75. This demonstrates that in the period of one year, the value of money has changed. Understanding the concept of Time value of money requires understanding in related concepts like Present value and Future value.Present Value and Example:

The current worth of money is termed as the present value. For example: Only for today they have offered the scheme of Rs.699 for post pregnancy weight loss program. From tomorrow the rate of post pregnancy weight loss program will be again Rs.1799. Therefore, the present value here is Rs.699. Based on the present value and the difference in future, one can find out the rate of increase or decrease in TVM.

Future Value and Example:
Future value is the amount or value of money on a specified date in future with respect to the same in today’s date. For example: The book on develop reading habit cost is Rs.100 today but the cost of same book on develop read habit will increase to Rs.150 by next month, owing to its popularity. Thus, Rs.150 is the future value in this situation.
These are the basics on Time Value of Money.