time value of money

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Time value of money

The idea that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received.

Time Value of Money

A fundamental idea in finance that money that one has now is worth more than money one will receive in the future. Because money can earn interest or be invested, it is worth more to an economic actor if it is available immediately. This concept applies to many contracts; for example, a trade in which payment is delayed will often require compensation for the time value of money. This concept may be thought of as a financial application of the saying, "A bird in the hand is worth two in the bush."

time value of money

The concept that holds that a specific sum of money is more valuable the sooner it is received. Time value of money is dependent not only on the time interval being considered but also the rate of discount used in calculating current or future values.

Time value of money.

The time value of money is money's potential to grow in value over time.

Because of this potential, money that's available in the present is considered more valuable than the same amount in the future.

For example, if you were given $100 today and invested it at an annual rate of only 1%, it could be worth $101 at the end of one year, which is more than you'd have if you received $100 at that point.

In addition, because of money's potential to increase in value over time, you can use the time value of money to calculate how much you need to invest now to meet a certain future goal. Many financial websites and personal investment handbooks help you calculate these amounts based on different interest rates.

Inflation has the reverse effect on the time value of money. Because of the constant decline in the purchasing power of money, an uninvested dollar is worth more in the present than the same uninvested dollar will be in the future.

time value of money

see DISCOUNTED CASH FLOW.
References in periodicals archive ?
Meanwhile, the S&P 500 rose 19% in the same period, All five stocks had a cumulative average return of more than 50%.
Once a CER was estimated for each firm in both samples, the mean of the CERs (the cumulative average return, or CAR) of each sample was calculated:
The costs/benefits incurred during a strike for the average struck/nonstruck firm in this study's sample are measured as the cumulative average return calculated for the period [t.sub.a] through [t.sub.s] - 1 (CAR [[t.sub.a], [t.sub.s] - 1] of Table 1).
The net post-strike effect on the average firm in this study's sample is reflected in the cumulative average return calculated for the period [t.sub.s], through [t.sub.s] + 30 (CAR [[t.sub.s], [t.sub.s] + 30] of Table 1).
Individual cumulative excess returns can vary significantly from the cumulative average return for the sample.(9)
In our sample, the two-day cumulative average return was 12.2 percent for the targets and 1.9 percent for the acquirers, and both were statistically significant at the 1 percent confidence level.(4)
In our sample, the two-day cumulative average return was -6.1 percent for the targets and -1.2 percent for the acquirers, and both were statistically significant at the 1 percent confidence level.(5) Since the competing hypotheses are not differentiated by examining the share prices of targets or acquirers, we focus our empirical test on the rivals.(6)
Relevant data contained in the Table 4 also shows that shareholders of acquirer firm earn almost three and a half per cent (statistically significant at 1 per cent) cumulative average returns during pre-event window of 19 days (-20, -2) for the acquisitions of the target firm as a WOS.
To control for the possibility that the event is at least partially anticipated, prediction errors are summed over a number of days around the event period and the statistical tests involve examining evidence on these cumulative average returns (CARs).
The cumulative average returns (CARs) are illustrated for the full 181-day event period in Figure 1 for both two-tier and non-two-tier firms.

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