Difference between revisions of "Time value of money"
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(New page: The time value of money is the concept that a dollar tomorrow is worth less than a dollar today, and the difference is reflected by the interest rate. The time value of money is due to op...) |
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Revision as of 11:58, May 5, 2007
The time value of money is the concept that a dollar tomorrow is worth less than a dollar today, and the difference is reflected by the interest rate.
The time value of money is due to opportunity cost, risk of uncertainty about the future and perhaps even human impatience in preferring something now over something later. It also takes into account inflation.
For example, if the interest rate is 5%, then $1.05 one year from now would be equivalent to $1 today.