Time Value of Money

Time Value of Money
Professor Anthony Mafias
University of Phoenix
August 13, 2012


Time Value of Money also known as TVM involves the exchange of something of value (money) at different points of time. TVM in the investment arena money is exchanged for the future cash flow associated with the investment. This paper will explore the four primary reasons the value of money depreciates if not received immediately. Time Value of Money is determined using analysis and formulas that solve the TVM problems in various situations.
Time Value of Money problems have six basic types that are separated by cash flow conversion, single or repeated values, and variables. This paper will explore how the TVM is used in the financial environment and give two examples of its application.

Time Value of Money
According to Investopidia.com, time value money also called TVM is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.
In the financial environment Time Value of Money is used in all investments. Single standard of value is determined on various sets of products and services. The passage of time between outflow and inflow determines the current value associated with cash flow that occurs at various times. When cash flow occurs and determining if the flow is positive or negative, makes it possible to assess the investment.
The four primary reasons why a dollar received in the future is worth less the dollar received immediately. The first reason is positive rates of inflation. The positive rate of inflation over time reduces the purchasing power of the dollar. The second reason is because of the cost of lost earnings. The lost cost of earning is suggest that the money could be worth more today if it were invested...