Time Value of Money - Present Value vs Future Value
The Organic Chemistry Tutor・2 minutes read
Present value calculates the current worth of money, while future value determines its value at a later date, showcasing the decrease in purchasing power. The time value of money emphasizes the importance of choosing money now over the same amount in the future due to inflation, reinforcing the concept that money is more valuable presently.
Insights
- Present value is the current worth of money, while future value is its value at a later time. Calculating future value from present value involves the formula FV = PV x (1 + r)^n, showcasing how money's purchasing power decreases over time.
- Understanding the time value of money is crucial in financial decisions. Opting for $1,000 now instead of in a decade is beneficial due to the higher purchasing power of present money, reinforcing the concept that money is more valuable in the present than in the future.
Get key ideas from YouTube videos. It’s free
Recent questions
What is the difference between present value and future value?
Present value is money's current worth, while future value is its value at a later time.
How can future value be calculated from present value?
Future value can be calculated using the formula FV = PV x (1 + r)^n.
How can the present value of money in the future be determined?
The present value of money in the future can be determined using the formula PV = FV / (1 + r)^n.
Why is understanding the time value of money important?
Understanding the time value of money is crucial for making informed financial decisions.
What does the time value of money emphasize?
The time value of money emphasizes that money's worth diminishes over time.
Related videos
The Finance Storyteller
Net Present Value (NPV) explained
Saheb Academy
#4 Net Present Value (NPV) - Investment Decision - Financial Management ~ B.COM / BBA / CMA
Maths Mode
CA FOUNDATION | CHAPTER -4 | TIME VALUE OF MONEY | EXERCISE-4C | MATHS MODE | SANTOSH SIR
The Finance Storyteller
Internal Rate of Return (IRR)
Edspira
Net Present Value (NPV)