It is understood that money has time value. The concept of time value of money is crucial in the domain of financial decision making. The worth of money changes over a specific period of time. This is evident with the rise in the worth of money. In financial decision making, identification of the time value of money and risk are essential.  This concept helps one to identify that the value of money varies at different points of time.

Significance of studying time value of money

It is crucial to know that money has time value due to:

  • Inflation
  • Risk
  • Investment chances
  • Consumption

Only when you know the time value of money, you will be able to make the right investments at all times and earn good returns despite inflation and risk factors. Assessing which investments will give you the maximum return over a certain period of time will help you make the right decisions. You can also calculate the present value of a payment that you need to do in future. Most assignments related to Time value of money deal with present and future value, which are calculated through some basic formulae. These are:

Future Value = Original value x (1 + rate of interest per annum) number of years

 Similarly, Present Value = Final Value

(1 + rate of interest per annum) number of years

You may have heard the proverb that ‘time is money’. Well, it is certainly true if you consider the concept of time value of money. Our experts will help you get to the core of the concept and you will be able to score high grades in your financial assignments. Send us your assignment details or place a quick order for getting training from an accomplished team.

Assignment

  1. The initial investment needed in a project is $50,000. The expected return is $5,000 p.a. for next 6 years. Another project needs investment of $30,000 with anticipated returns at $ 5,000 p.a. for next 6 years. The cash inflows of the first venture are more compared to the outflows. In the second project, the cash outflows exceed the cash inflows. Which project is viable for investment?

This decision can be made only after comparing the cash outflows and inflows of both projects. If the cash flows are considered, then it is the first project compared to the second one which would be more beneficial for investment.

2.   Do you agree that money has a time value? Explain.
Yes, money does have a time value. This is evident by the fact that the net value of money invested today is likely to multiply tomorrow.