What is Time Value of Money?

Abdulla Javeri

30 years: Financial markets trader

Time Value of Money is arguably the most important concept in the world of business and finance. In this video, Abdulla explains the concept of Time Value of Money, step by step.

Financial Maths

Time Value of Money is arguably the most important concept in the world of business and finance. In this video, Abdulla explains the concept of Time Value of Money, step by step.

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What is Time Value of Money?

6 mins 8 secs

Overview

The concept of the Time Value of Money (TVM) is that money has a value today (its Prevent Value or PV) that can be invested at a given interest rate to derive a higher Future Value (FV). For value comparisons, FV can be discounted to a PV equivalent. PV can be compounded to find its FV.

Key learning objectives:

Define the Time Value of Money
Identify the equation used to calculate TVM

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Summary

What is the Time Value of Money?

The time value of money (TVM) is arguably the most important concept in business and finance and is fundamental to understanding value, the profitability of investments and the value of financial assets. The concept of TVM is that money has a value today (its Prevent Value or PV) that can be invested at a given interest rate (i.e. compounded) to derive a higher Future Value (FV). For comparisons, FV can be discounted to a PV equivalent. PV can be compounded to find FV, using a simple formula.

What is the equation used to calculate TVM?

FV = PV x (1+r_p)^periods(n)

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Expert

Abdulla Javeri

Abdulla’s career in the financial markets started in 1990 when he entered the trading floor of the London International Financial Futures Exchange, LIFFE, and qualified as a pit trader in equity and equity index options. In 1996, Abdulla became a trainer for regulatory qualifications and then for non-exam courses, primarily covering all major financial products.