Time Value of Money

The basic principle that money can earn interest. Therefore something that is worth $1 today will be worth more in the future if invested.

A key concept of TVM is that a single sum of money or a series of equal, evenly-spaced payments or receipts promised in the future can be converted to an equivalent value today. Conversely, you can determine the value to which a single sum or a series of future payments will grow at some future date.

It can be used to compare investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities.