San Francisco State University

• FINANCE FIN 351

• Issues • Concepts • Objectives of Time Value of Money • Factors considered in time value of money • Process of TVM: Discounting and Compounding • Tools/Techniques of Computing TVM • Application of TVM Concept of Time Value of Money • Time Value of Money is the value of a unit of money at different time intervals. • The time value of money is the principle that the purchasing power of money can vary over time; money today might have a different purchasing power than money a decade later. Concept of Time Value of Money • Money received in the present is worth more than the same amount received in the future. • This is because if any one has a taka in hand, s/he can put it into a bank (invest it) and can earn interest (return) on it, and tomorrow s/he is going to have more than a taka, which of course, is more desirable than having just one taka. Concept of Time Value of Money • The time value of money demonstrates that, all things being equal, it is better to have money now rather than later. Objectives of Time Value of Money • Calculation of Present Value and Future Value • Determination of Interest Rate • Calculation of Installment • Determination of Time Period • Investment Decision/Project Appraisal • Valuation of Financial Securities • Risk Management Factors considered