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Time Value of Money Fundamentals

Explain the Time Value of Money and Calculate Present and Future Values of Lump Sums and Annuities

Investments represent the expenditure of money today for an anticipated return sometime in the future. The first step in understanding how to evaluate an investment is to understand the time value of money. In this section, you will learn about the present and future value of money.
Your mother gives you $100 cash for a birthday present, and says, "Spend it wisely". You want to purchase the latest cellular telephone on the market but wonder if this is really the best use of your money. You have a choice: You can spend the money now or spend it in the future. What should you do? Is there a benefit to spending it now as opposed to saving for later use? Does time have an impact on the value of your money in the future? Businesses are confronted with these questions and more when deciding how to allocate investment money. A major factor that affects their investment decisions is the concept of the time value of money.

Source: Openstax, https://openstax.org/books/principles-managerial-accounting/pages/11-3-explain-the-time-value-of-money-and-calculate-present-and-future-values-of-lump-sums-and-annuities
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