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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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."
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

time value of money

see DISCOUNTED CASH FLOW.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
References in periodicals archive ?
Plan beneficiaries are concerned about the present discounted value of expected future pension payments, which we call the benefit value ([B.sub.t]) henceforth.
We set the opportunity cost of going to college equal to the present discounted value of the wage earnings of a high school graduate that she would have earned by working for four years instead of going to college.
Firms maximize the present discounted value of profits.
Let [U.sub.MTT] be the present discounted value of the utility function under the MTT regime, [U.sub.LST] be that under the LST case, and [U.sub.NT] be that under the no-transfer regime.
In words, (12) states that along optimal paths (for interior solutions, 0 < R < J) the marginal loss of utility (in terms of leisure) as a result of putting retirement one period off must equal the marginal gain of utility (in terms of lifetime consumption) as the sum of present discounted value labor income is increased.
Wealth is therefore equal to the present discounted value of future per capita GDP plus the present discounted value of the idiosyncratic component of wages.
Further, solving this differential equation for the marginal revenue of human capital in terms of the present discounted value of the expected future rental rate of human capital yields:
Thus, in the model, current bond and stock prices are determined by the present discounted value of expected coupon and dividend payments.
Therefore, we proxy these terms using the present discounted value of earnings of employed workers of the given educational level and the unemployment rate of workers of the given education level upon graduation.
Craig goes on to calculate the "total net present value of a child at birth" by factoring in the inputs spent on raising the child, the probability that the child will survive, and the present discounted value of any bequest to the child as well as the present discounted value of the child's provision of old-age security for the parents.
This value expression indicates that the property value is the present discounted value of the developed net income stream, where the rate of discount includes not only the interest rate r but also the tax rate |Tau~.
An individual will quit his/her job if tie expected present discounted value of the current job is less than the expected present discounted value of the next best alternative, net of moving costs.