What is time value of money?
Time value of money is an important concept used in finance to understand the relationship between time and money. It states that a rupee today will have more value than a rupee tomorrow due to inflation and other factors. Economic decisions are heavily influenced by this principle as it helps us better understand investments and future financial goals.
How to calculate time value of money?
To calculate the time value of money, you need to know the following information:
Time value money formula
The formula for calculating the time value of money is:
Future Value = Present Value x (1 + Interest Rate)^Time
For example, if you have INR 1,000 today, and you expect it to earn an interest rate of 5% per year for a period of 5 years, the future value of the money would be calculated as follows:
Future Value = 1,000 x (1 + 0.05)^5
Future Value = 1,276.28
Therefore, the future value of the money would be INR 1,276.28.