Agree/Disagree and Why?

Question: TVM is one of the most important theories in finance - we use it EVERYWHERE in finance.We can use TVM to value stocks, bonds, and even organizations.We can also use TVM in retirement planning, borrowing, leasing, and refinancing.Anyway, take my word for it, TVM is huge.All right, so let's start with some basic questions, then problems.First, what is TVM?In other words, is a dollar worth more today or tomorrow?What rate is used to discount "future values" expected to be received in the future?

Answer: The time value of money (TVM) is the concept that the money you have now is worth more than the identical sum in the future due to its potential earning capacity. This means that the provided money can earn interest, any amount of money is worth more the sooner it is received.(Chen, 2020). The time value of money comes from the idea that some might prefer to receive money today rather than the same amount of money in the future because of money's potential to grow in value over a given period of time. For example, money deposited into a savings account earns a certain interest rate and is therefore said to be compounding in value.(Chen, 2020).

In finance, "time value of money" concepts play a central role in decision support and planning. When investment projections or business case results extend more than a year into the future, professionals trained in finance usually want to see cash flows presented in two forms, with discounting and without discounting. Financial specialists will want to know the time value of money impact on long-term projections. In discounted cash flow analysis DCF, two "time value of money" terms are important: Present value(PV)is what the future cash flow is worthtoday. Future value(FV) is the value that flows in or out at the designated time in the future. (Encyclopedia, 2020). The interest rate (or discount rate) and the number of periods are the two other variables that affect the FV and PV. The higher the interest rate, the lower the PV and the higher the FV. The same relationships apply for the number of periods. The more time that passes, or the more interest accrued per period, the higher the FV will be if the PV is constant, and vice versa.