Time value

 

                          

Time value of money:

Time value of money is the idea that there is a greater benefit to receiving a sum of money now rather than an identical sum later. It is founded on time preference.

Or,

The time value of money is the concept that the money you have now is worth more than the identical sum 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.

Present Value:

Present value is the current value of a future sum of money or stream of cash flows given a specified rate of return.

Future Value:

Future value is the value of an asset at a specified date. It measures the nominal future sum of money that a given sum of money is worth at a specified time in the future assuming a certain interest rate.

Compounding:

It is used to determine the future value of an investment made in the present.

Discounting:

It is used to determine the present value of a cash flow that is due to come in the future.