Time Value of Money

The time value of money is a fundamental concept in finance and economics. It refers to the idea that money available today is worth more than the same amount of money in the future due to its potential to earn interest or increase in value over time. The time value of money is important because it helps individuals and businesses make informed financial decisions about investments, loans, and savings.

For example, if you have $100 today, you could put it in a savings account with a 3% annual interest rate. If you save it, your money will earn interest, and in a year, you will have $103. This means that your money has increased in value because of the interest you earned.

Understanding the time value of money is essential for making informed financial decisions. It can help you determine the best way to invest, save, or borrow money to meet your financial goals. By learning about the time value of money, you can make smart financial decisions that will benefit you in the long run.