Overview

The time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future, due to it's potential earning capacity. This core principle of finance holds that, provided money can earn interest; any amount of money is worth more the sooner it's received.

Instructions:

1) Briefly explain why money has a time value.

2) The discount rate in time value of money problems is often referred to as an "opportunity cost" of capital. Explain what this means.

3) "Discounting future values is the exact opposite of compounding present values." Agree or disagree with this statement, explain your logic.