Time Value of Money

“Time is money”.

Money has no monetary value except when it is put in the context of time. Stated alternatively: “A dollar today is worth more than a dollar tomorrow”. The value is the effect of time on invested money. This is the most basic principle of finance.

Interest is the rental cost of borrowing money. For the borrower, interest is the rent paid for borrowing money; for the lender the income earned from lending money. They are just different sides of the same coin. The concept of the time value of money is relevant in finance, accounting, law, and taxation.

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