The value of money is related to time. The concept of time value of money is the root of most financial decisions. Today’s 100 dollars and 100 dollars after 5 years will not carry the same value. This concept of time value is not only necessary in the business sectors but also in our daily life.
From the perspective of finance, the value of money changes with the changes of time. That means 100 dollars of that time and 100 dollars after 5 years do not have the same value. 100 dollars of present time is more valuable. It is the concept of time value.
According to Khan & Jain “ Time value of money means that the value of a sum of money received today is more than it’s value received after some time”.
Now question is, How present value of money is more than the future value ?
Suppose, interest rate is 10%, so if you deposit 100 dollars in a bank then bank will give you 110 dollars after one year. Thus today’s 100 dollars and 110 dollars after one year bear same value.
