What is the 'Time Value of Money  TVM'
The time value of money (TVM) is 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. TVM is also referred to as present discounted value.
BREAKING DOWN 'Time Value of Money  TVM'
Money deposited in a savings account earns a certain interest rate. Rational investors prefer to receive money today rather than the same amount of money in the future because of money's potential to grow in value over a given period of time. Money earning an interest rate is said to be compounding in value.Basic Time Value of Money Formula and Example
Depending on the exact situation in question, the TVM formula may change slightly. For example, in the case of annuity or perpetuity payments, the generalized formula has additional or less factors. But in general, the most fundamental TVM formula takes into account the following variables:
FV = Future value of money
PV = Present value of money
i = interest rate
n = number of compounding periods per year
t = number of years
Based on these variables, the formula for TVM is:
FV = PV x (1 + (i / n)) ^ (n x t)
For example, assume a sum of $10,000 is invested for one year at 10% interest. The future value of that money is:
FV = $10,000 x (1 + (10% / 1) ^ (1 x 1) = $11,000
The formula can also be rearranged to find the value of the future sum in present day dollars. For example, the value of $5,000 one year from today, compounded at 7% interest, is:
PV = $5,000 / (1 + (7% / 1) ^ (1 x 1) = $4,673
Effect of Compounding Periods on Future Value
The number of compounding periods can have a drastic effect on the TVM calculations. Taking the $10,000 example above, if the number of compounding periods is increased to quarterly, monthly or daily, the ending future value calculations are:
Quarterly Compounding: FV = $10,000 x (1 + (10% / 4) ^ (4 x 1) = $11,038
Monthly Compounding: FV = $10,000 x (1 + (10% / 12) ^ (12 x 1) = $11,047
Daily Compounding: FV = $10,000 x (1 + (10% / 365) ^ (365 x 1) = $11,052
This shows TVM depends not only on interest rate and time horizon, but how many times the compounding calculations are computed each year.

Compounding
The ability of an asset to generate earnings, which are then ... 
Continuous Compounding
The process of earning interest on top of interest. The interest ... 
Compound Interest
Compound Interest is interest calculated on the initial principal ... 
Annualized Total Return
The average amount of money earned by an investment each year ... 
Present Value Of An Annuity
The current value of a set of cash flows in the future, given ... 
Future Value Of An Annuity
The value of a group of payments at a specified date in the future. ...

Investing
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today. 
Managing Wealth
Dissecting the Simple Interest Formula
Simple interest ignores the effect of compounding: it's only calculated on the principal amount. This makes it easier to calculate than compound interest. 
Investing
Time Value Of Money: Determining Your Future Worth
Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation. 
Investing
Learn Simple And Compound Interest
Interest is defined as the cost of borrowing money, and depending on how it is calculated, can be classified as simple interest or compound interest. 
Investing
How Much Is Your Investment Worth? A Look At TVM
Investors are always searching for ways to calculate what an investment is worth. What will the money we invest today be worth in 5, 10, or even 50 years? 
Investing
The Effective Annual Interest Rate
The effective annual interest rate is a way of restating the annual interest rate so that it takes into account the effects of compounding. 
Investing
Accelerating Returns With Continuous Compounding
Investopedia explains the natural log and exponential functions used to calculate this value. 
Investing
How does Compound Interest Work?
A quick way to understand the impact of compound interest is to ask yourself if you’d rather receive $100,000 a day for a month, or start with a penny on day one and double it every day for those ... 
Investing
Understanding The Time Value Of Money
Find out why time really is money by learning to calculate present and future value. 
Personal Finance
How Interest Rates Work on Savings Accounts
Here's what you need to know to grow your rainyday fund.

Why does time value of money (TVM) assume that a dollar today is worth more than ...
Learn about time value of money, or TVM, and how a present value calculator is used to determine the value of money received ... Read Answer >> 
Why is the time value of money (TVM) an important concept to investors?
Understand why the time value of money is an important concept for investors. Learn when present value and future value calculations ... Read Answer >> 
How do I use the rule of 72 to calculate continuous compounding?
Find out why the rule of 72 does not accurately reflect the growth caused by continuous compounding, and which number can ... Read Answer >> 
What formula can I use to calculate interest on interest?
Find out more about compounding interest, what it measures and how to calculate the amount of compound interest accrued using ... Read Answer >> 
How do I adjust the rule of 72 for higher accuracy?
Read about the Rule of 72, why it is only an approximation, and how the Rule of 69.3 can be substituted in for more accurate ... Read Answer >>