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Present Value and Future Value >>

Introduction To The Time Value Of Money

Key Ideas
  • One dollar today is worth more than one dollar tomorrow.
  • Time Value of Money concepts help make decisions about investing and borrowing money.
The concept of the Time Value of Money is summarized by the notion that "a dollar today is worth more than a dollar tomorrow." This simple idea has proven to be a foundation for financial decision making.

As a result, a series of financial formulas that quantify the tradeoffs between dollars today versus dollars tomorrow has evolved to provide a better understanding of borrowing and investing.

These methods and formulas help answer important financial questions:

  • How long will it take to pay off a debt?
  • What will the monthly payment be on a loan?
  • How much money will I have to invest today to reachmy goals tomorrow?

The following pages provide an understanding of the key Time Value of Money concepts. Present Value, Future Value, Interest Rates, and Payment Timing are described so you can apply them and use them with your financial calculator.



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