ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The time value of money (TVM) is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim. The time value of money is a core principle of finance. A sum of money in the hand has greater value than the same sum to be paid in the future.

Detailed explanation-2: -Inflation: In an inflationary economy, the money received today, has more purchasing power than the money to be received in future. In other words, a rupee today represents a greater real purchasing power than a rupee a year after.

Detailed explanation-3: -The time value of money is the concept that money is worth more in the present than in the future due to its potential earning capacity, or alternatively, to inflation. If you invest $100 today, that money can start earning interest or dividends.

Detailed explanation-4: -Present value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return. Present value takes the future value and applies a discount rate or the interest rate that could be earned if invested.

Detailed explanation-5: -The present value is usually less than the future value because money has interest-earning potential, a characteristic referred to as the time value of money, except during times of zero-or negative interest rates, when the present value will be equal or more than the future value.