Investing
Time Value of Money
The concept that money available now is worth more than the same amount in the future.
Definition
The time value of money (TVM) is a core financial concept that states money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This is the foundation of finance and underlies concepts like present value, future value, annuities, and discounted cash flow analysis. A dollar today can be invested to earn interest, making it worth more than a dollar received tomorrow. TVM is used to compare investment alternatives, value bonds and stocks, calculate loan payments, and make capital budgeting decisions. The discount rate used in TVM calculations reflects the opportunity cost of capital.