Time Value of Money (TVM)

The principle that money today is worth more than the same amount in the future due to its earning potential.

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Time Value of Money

The time value of money (TVM) explains why money today is worth more than the same amount in the future, due to the potential for earning returns.

  • Money can grow over time through investment.
  • Inflation reduces future purchasing power.
  • Risk increases over longer periods.

Key Points

1

Earlier access to money is more valuable.

2

Inflation decreases money’s value over time.

3

Investment opportunities make current money worth more.

Last Updated: 3/16/2025

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