Time Value of Money:
Time value of money demonstrates the relation of value of money with time. Time value of money is as well value of interest that we have earned for giving money to other for specific time period. Value of Rs. 1 that you have nowadays is more valuable than what Rs. 1 you will receive subsequent to one year since you can invest today receive Rs. 1 in any scheme and you can make minimum interest on it. It means today received money is significant than tomorrow receivable money.
Time value of money is very obliging method for taking investment decisions. We believe that proposal first which will return our money fusty than any other project. We can too compute value of today earned money when we invest it in specific time period on the basis of interest rate.
Example which demonstrates the time value of money:
Nowadays we receive Rs. 100 and invest it in saving account of bank and after 1 year we will obtain Rs. 103.50. Rs. 3.50 is the time value of money and in another word it is interest that we will earn on our investment.
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