Concept Of Money: The Concepts Of Time Value Of Money
The concept of time value of money lies in the argument that a dollar today is worth more than a dollar in the future. This is mainly because money loses value over time due to many different factors. One of the factors that affect the value of money is inflation. Interest rate is another factor that affects the value of money. Fisher (2006) argues that inflation has an effect on the value of money because it reduces the buying power of money.
Concepts about time value of money tries to put into consideration the financial decisions by enabling financial analysts to convert the different cash flows from the different time periods into present or future values.
Present value concept
Present value is one of the concepts of time value of money …show more content…
It has given the definition about time values of money and it has explored the usefulness of the concepts of time value of money. From the argument above, it is evident that the concepts of time value of money are based on the argument that money that is received today is worth more than money that will be received in the future.
The other argument behind the concept of time value of money is based on the argument that when a person waits for the amount to be paid in the future, they tend to forego an opportunity that they can receive a rate of return on the amount that they are waiting to earn in the future. Some of the concepts of time value of money include present value, future value, interest rates and financing options.
Financial managers and financial analysts including financial advisors use the different formulas of the concepts of time value of money when they want to determine the cost of the various investment opportunities. Financial institutions and banks also use these concepts to advise their customers on the importance of depositing funds in their accounts so that they can have more money in the