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 such as inflation and interest rates. Inflation is the general increase in prices, which means that the value of money depreciates over time as a result of that change in the general level of prices.
Changes in the price level are reflected in the interest rate. The interest rate is charged by financial institutions on loans (i.e., a mortgage or car loan) to individuals or businesses and TVM is taken into account in setting the rate.
TVM is also described as discounted cash flow (DCF). DCF is a technique used to determine the present value of a certain amount of money when received at a future date. The interest rate is used as the discounting factor, which can be found by using a present value (PV) table.
A PV table shows discount factors from time 0 (i.e., the current day) onward. The later money is received, the less value it holds, and $1 today is worth more than $1 received at a date in the future. At time 0, the discount factor is 1, and as time goes by, the discount factor decreases. A present value calculator is used to obtain the value of $1 or any other sum of money over different time periods.
For example, if an individual has $100 and leaves it in cash rather than investing it, the value of that $100 declines. However, if the money is deposited in a savings account, the bank pays interest, which depending on the rate could keep up with inflation. Therefore, it is best to deposit the money in a savings account or in an asset that appreciates in value over time. A PV calculator can be used to determine the amount of money required in relation to present versus future consumption.

When and why should the terminal value be discounted?
Find out why investors use the terminal value, why the terminal value is discounted to the present day, and how it's related ... Read Answer >> 
How do you calculate present value in Excel?
Learn what present value and future value are and how to use Microsoft Excel to calculate present value, given the future ... Read Answer >> 
What is the difference between the cost of capital and the discount rate?
Learn about the differences between the cost of capital and the discount rate as they relate to estimating a required return ... Read Answer >> 
What's the difference between the prime rate and the discount rate?
Learn more about the prime rate and the discount rate and how the Federal Reserve uses these rates in the U.S. economy. Explore ... Read Answer >> 
What industries tend to use discounted cash flow (DCF), and why?
Understand the valuation method of discounted cash flow analysis and why it is more suitable for evaluating certain industries ... Read Answer >>

Investing
Taking Stock Of Discounted Cash Flow
Learn how and why investors are using cash flowbased analysis to make judgments about company performance. 
Personal Finance
5 Mistakes You're Making With Money Market Accounts
Money market accounts can be helpful "parking spots" for investors. Here are five key things to keep in mind when opening an account. 
Retirement
Are You On Track To Hit Your Desired Net Worth By Retirement?
Here are some calculations to determine if your net worth is what it should be at your age. 
Retirement
Present and Future Value of Annuities
Do you want to invest in annuities that get you a series of payments over a period of time. Here's everything you need to account for when calculating the present and future value of annuities. 
Investing
What Is The Intrinsic Value Of A Stock?
Intrinsic value reduces the subjective perception of a stock's value by analyzing its fundamentals. 
Retirement
Introduction To Retirement Money Market Accounts
Money market funds are used in retirement plans and accounts because they are liquid, stable and pay competitive rates of interest. 
Insights
What is Money?
Money: It's a part of everyone's life, and we all want it, but what is it, how does it gain value, and how it was created? 
Personal Finance
The 7 Best Places to Put Your Savings
You work hard to put your money away for the future, but where should you keep it?

Time Value of Money  TVM
The time value of money is the idea that money presently available ... 
Discounting
Discounting is the process of determining the present value of ... 
Cumulative Interest
Cumulative interest is the sum of all interest payments made ... 
Absolute Value
Absolute value is a business valuation method that uses discounted ... 
Discount Rate
Discount rate is the interest rate charged to commercial banks ... 
Bank Discount Rate
The bank discount rate is the interest rate for shortterm moneymarket ...