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".
BREAKING DOWN '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.

Net Present Value  NPV
Net Present Value (NPV) is the difference between the present ... 
Annuity
A financial product that pays out a fixed stream of payments ... 
Annual Equivalent Rate  AER
Interest that is calculated under the assumption that any interest ... 
Future Value  FV
The value of an asset or cash at a specified date in the future ... 
Capital Asset Pricing Model  CAPM
A model that describes the relationship between risk and expected ... 
Interest Rate
The amount charged, expressed as a percentage of principal, by ...

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How do mutual funds compound interest?
The magic of compound interest can be summed up as the concept of interest making interest. On the other hand, simple interest ... Read Full Answer >> 
What are some of the limitations and drawbacks of using a payback period for analysis?
Limitations, or disadvantages, of using the payback period method in capital budgeting include the fact that it fails to ... Read Full Answer >> 
What impact does inflation have on the time value of money?
The impact that inflation has on the time value of money is that inflation decreases the value of a dollar over time. The ... Read Full Answer >> 
Why is the time value of money (TVM) an important concept to investors?
The time value of money (TVM) is an important concept to investors because a dollar on hand today is worth more than a dollar ... Read Full Answer >> 
Why does time value of money (TVM) assume that a dollar today is worth more than ...
The time value of money, or TVM, assumes a dollar in the present is worth more than a dollar in the future because of variables ... Read Full Answer >> 
Why would you take DCF into account rather than simply projecting future revenues?
Discounted cash flow, or DCF, analysis is preferred by market analysts for two basic reasons. One, because of the firmly ... Read Full Answer >>