Written by This calculator calculate the future value, present value, and time period of an annuity,
The time value of money (TVM) is a key concept in finance. It tells us that money today is worth more than money in the future.
Why is that? Because money today can be invested and earn interest, making it grow over time.
There are four reasons for the time value of money: inflation, reinvestment opportunities, uncertainty and risk, and preference for present consumption.
The time value of money is the concept that money available at the present time is worth more than the same amount of money in the future due to its potential earning capacity.
It tells us that money today is worth more than money in the future because money today can be invested and earn interest.
Simply said, the value of money today will exceed its value at some point in the future.
For example, if you have $100 today and you invest it at a 10% annual interest rate, you will have $110 after one year.
But if you wait for one year and then receive $100, you will not be able to invest it and earn interest. So, $100 today is worth more than $100 in one year.
A lump sum refers to a single, complete payment of a sum of money, typically all at once rather than in installments. It’s a one-time payment that covers the entire amount owed or agreed upon, without the need for further payments. A lump sum is also defined as a fixed and complete amount of money paid at once, rather than being paid in installments or on a regular basis.
