A very simple way to understand time value of money is assuming I have $100 to give to you, do you rather have it today or 6 month from now? 1 year from now?
Thus, money today is worth more than money in the future; when you have the money in your hand right NOW, you will be able to do what ever you want with it NOW.
Further into the future it goes, the less it’s worth. $100 today is preferred over $100 in 6 months, and $100 in 6 months is preferred over $100 in 6 years.
This is why if you borrow money, you have to pay interest for using the money NOW. If you deposit money into banks, they have to pay you interest for using your money.
It’s this simple!
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