Finance glossary
Time Value of Money
Definition
The idea that money today is worth more than the same amount later.
The time value of money holds that a dollar now is worth more than a dollar in the future because it can be invested to earn returns. It underpins discounting, loan pricing, and valuation, and explains why interest exists. Present and future value calculations apply it.
In a sentence
Because of the time value of money, she preferred $1,000 today over $1,000 a year from now.
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