Question 1

What is the time value of money?

Accepted Answer

The time value of money is the concept that a dollar today is worth more than a dollar in the future because today's dollar can be invested to earn returns. It is the foundation of financial planning and investing.

Question 2

How do you calculate future value?

Accepted Answer

Future Value = Present Value × (1 + interest rate)^n, where n is the number of periods. A $1,000 investment at 7% annual growth for 10 years becomes $1,967.15.

Question 3

What is present value vs future value?

Accepted Answer

Present value is what a future sum of money is worth today after discounting for the time value of money. Future value is how much a current amount will grow to be at a future date given a rate of return.

Question 4

Why is time value of money important?

Accepted Answer

Time value of money explains why investing early is powerful, why inflation erodes purchasing power, and why getting money sooner is always better than later when comparing financial options.

Question 5

What is a discount rate in time value of money?

Accepted Answer

A discount rate is the interest rate used to convert future cash flows into present value. It represents the opportunity cost of capital — the return you could earn on an alternative investment of similar risk.

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