Time Value of Money
What is Time Value of Money?
The idea that money now is worth more than the same amount later.
Understanding Time Value of Money
Money available today can be invested to earn a return, so a future sum must be discounted to compare it with money now.
It is the basis for present value, net present value, and bond pricing.
Formula
Example
$1,100 received in one year is worth $1,000 today at a 10% discount rate.