We are only conducting Seminars to make Professional Traders. Join Now for Hyderabad and Chennai Seminar.

What is Time Value of Money?

The concept of time value of money arises from the relative importance of an asset now vs. in future. Assets provide returns and ownership of assets provides access to these returns. For example, Rs. 100 of today’s money invested for one year and earning 5% interest will be worth Rs. 105 after one year.

Hence, Rs. 100 now ought to be worth more than Rs. 100 a year from now. Therefore, any wise person would chose to own Rs. 100 now than Rs. 100 in future. In the first option he can earn interest on on Rs. 100 while in the second option he loses interest. This explains the ‘time value’ of money.

Also, Rs. 100 paid now or Rs. 105 paid exactly one year from now both have the same value to the recipient who assumes 5% as the rate of interest. Using time value of money terminology, Rs. 100 invested for one year at 5% interest has a future value of Rs. 105.

The method also allows the valuation of a likely stream of income in the future, in such a way that the annual incomes are discounted and then added together, thus providing a lump-sum “present value” of the entire income stream. For eg. If you earn Rs. 5 each for the next two years (at 5% p.a. simple interest) on Rs. 100, you would receive Rs. 110 after two years. The Rs. 110 you earn, can be discounted at 5% for two years to arrive at the present value of Rs. 110, i.e. Rs. 100.

Valuing future cash flows, that may arise from an asset such as stocks, is one of the cornerstones of fundamental analysis. Cash flows from assets make them more valuable now than in the future and to understand the relative difference we use the concepts of interest and discount rates. Interest rates provide the rate of return of an asset over a period of time, i.e., in future and discount rates help us determine what a future value of asset, value that would come to us in future, is currently worth.

The present value of an asset could be shown to be:

Where

PV = Present Value FV = Future Value r = Discount Rate
t = Time

Subscribe for free stock tips and make money like pro.

Most Visited Stocks - Click to Visit Link

SEE WHAT OUR SUBSCRIBERS SAY !!

"First off all, I just want to say that your service is excellent – by far the best tips service I have encountered and quality of your Jackpot tips is really good and noticed that now I am getting daily profit. I can say that it makes a difference to choose the correct tips provider and it was my luck that I stumbled on your website."

- Rajesh

WELCOME TO SMART INVESTOR FAMILY

We Compliment you for becoming a part of mega family of more than 12 Lakh Smart Traders who are getting benefitted with our services worldwide. We assure You that we will deliver more than what we promise. Do remember to leave questions and Feedback. Your Success is Guaranteed with us!

You can Contact us through Contact Box provided on website or You can call us at 09041060460 or Email at info@indian-share-tips.com. You can make Online Payment through Payment Gateway installed on the website as we offer you the highest standard of security currently available on the Net so as to ensure that your online transaction is Private, Safe and Secure.

 
We Teach and Train our Clients First Before Joining as we want to make sure that clients trade in market as a thorough professional. Charges if any being paid by you are for the teaching and training and Trade Ideas given are provided free with the teaching and training and we do not charge any amount for it. If you can not join the seminar; you can learn from us via mobile and email. Your Joining with us is purely for educational purpose. Your joining is subject to acceptance of our terms and Disclaimer for which link is given on the site at bottom right hand corner. Wherever the word tip is written; it implies an idea which is of informational value and is not suitable for trading. We are conducting Seminars to make Professional Traders. Join Now for Bangalore, Chennai and Hyderabad Seminar. Call Now at 09358493584.
Chart> Nifty A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 0-9