Time Value of Money - TVM

Filed Under » ,
Dictionary Says

Definition of 'Time Value of Money - TVM'

The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. 

Also referred to as "present discounted value".
Investopedia Says

Investopedia explains 'Time Value of Money - TVM'

Everyone knows that money deposited in a savings account will earn interest. Because of this universal fact, we would prefer to receive money today rather than the same amount in the future.

For example, assuming a 5% interest rate, $100 invested today will be worth $105 in one year ($100 multiplied by 1.05).  Conversely, $100 received one year from now is only worth $95.24 today ($100 divided by 1.05), assuming a 5% interest rate.

Related Video for 'Time Value of Money - TVM'

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Future Value - FV

    The value of an ...

  2. Annuity

    A financial ...

  3. Interest Rate

    The amount ...

  4. Present Value - PV

    The current ...

  5. Capital Asset Pricing Model - CAPM

    A model that ...

  6. Annual Equivalent Rate - AER

    Interest that is ...

  7. Present Value Interest Factor - PVIF

    A factor that ...

  8. Realization Multiple

    A private equity ...

  9. Net Present Value - NPV

    The difference ...

  10. Discounting

    The process of ...

Articles Of Interest

  1. Understanding The Time Value Of Money

    Find out why time really is money by learning to calculate present and future value.

  2. Time Value Of Money: Determining Your Future Worth

    Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation.

  3. Calculating The Present And Future Value Of Annuities

    At some point in your life you will have to deal with a series of fixed payments over time, so it pays to know how to calculate them.

  4. For IRAs, Time Is Money

    Don't procrastinate. The timing of your contributions can mean thousands more in savings.

  5. Digging Into The Dividend Discount Model

    The DDM is one of the most foundational of financial theories, but it's only as good as its assumptions.

  6. DCF Valuation: The Stock Market Sanity Check

    Calculate whether the market is paying too much for a particular stock.

  7. Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.

  8. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.

  9. The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.

  10. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
Sponsored links

comments powered by Disqus
Hot Definitions

  1. Love Money

  2. Shark Watcher

  3. Judo Business Strategy

  4. Dogs Of The Dow

  5. Chinese Hedge

  6. X-Mark Signature

Recommended
Loading, please wait...
See More »
Trading Center