The concept that money available today is worth more than the same amount of money in the future Thus, a money received today is worth more than a money received tomorrow, why?

1. TIME VALUE OF MONEY

2. THE TIME VALUE OF MONEY
Would you prefer to
have 1 million dollar now or
1 million dollar 10 years
from now?
Of course, we would all
prefer the money now!
This illustrates that there
is an inherent monetary
value attached to time.

3. WHAT DOES TIME VALUE
OF MONEY MEAN?
• The concept that money available today is worth more than
the same amount of money in the future
• Thus, a money received today is worth more than a money
received tomorrow, why?

4. REASONS FOR TIME VALUE OF
MONEY
• Investment Opportunities: Money has the potential to grow over
a period of time because it can be invested somewhere. For
example, if Rs. 1000 can be invested in a fixed deposit for one
year at 7% p.a., the money will grow to Rs, Rs. 1070 at the end of
one year. Therefore, given the choice of Rs. 1000 now or the same
amount in one year’s time, it is always preferable to take Rs.
1000 now.
• Inflation: Inflation is the fall in the purchasing power of money. It
makes money cheaper and the goods and services costlier.
Suppose you can buy 1 kg of rice with Rs. 50 today. If the
inflation rate is 10%, You need Rs. 55 to buy 1 kg of rice a year
from now.

5. REASONS FOR TIME VALUE OF
MONEY
• Risk: Money received now is certain, whereas money
tomorrow is less certain. This ’bird in the hand’ principle is
extremely important in investment appraisals.
• Personal consumption preference: Many people have a strong
preference for immediate rather than delayed consumption.
For a hungry man, promise of a meals next month means
nothing.

6. TIME VALUE OF MONEY
 Future Value of a Single Amount
 Future Value of an Annuity
 Present Value of a Single Amount
 Present Value of an Annuity

7. FUTURE VALUE OF A SINGLE
AMOUNT
Suppose you have Rs. 1000 today and you deposit it with a financial institution,
which pays 10% interest compound annually, for a period of 2 years.

8. If you deposit Rs. 1000 today in a bank which pays 10% interest
compounded annually, how much will the deposit grow to after 8
years and 12 years?

10. FUTURE VALUE OF ANNUITY
An annuity is a series of periodic cash flows (payments or
receiptpts) of equal amounts.

11. • Suppose you deposit Rs 1000 annually in a bank for 5 year
and your deposits earn a compound interest rate of 10%. What
will be the value of series of deposits at the end of 5 years?

13. PRESENT VALUE OF A SINGLE
AMOUNT
Suppose someone gives you Rs1000 six year hence. What is the
present value of this amount if the interest rate is 10%?

15. PRESENT VALUE OF AN ANNUITY
• Present value of a 4 year annuity of Rs10000 discounted at
10%

17. FV V/S PV