How Is This Applied?

Calculating the present value of money answers the question;

If an investment promises to pay me a certain amount in future, how much is that sum worth today?

Choosing the investment with the highest interest rate (returns rate) is viable but this doesn’t work in all cases, because it might be difficult to estimate the return rates on all available options.

The length of time it takes for each investment to pay their respective returns should als...

Investment in its most simple form means “using an asset you own to generate future profits” and assets don’t always mean money; sometimes it could be time, effort, or a property you own.

With this perspective, we can consider two school kids pledging porti...

This answers the questions:

I have a certain amount in hand today, how much is it worth in future?

• The time value of money is vital in making business decisions
• The present value of money can be used to estimate what the profit of your investment is worth in today’s terms.
• Discount rates or interest rates can be determined by considering what return you’ll get from another...

Interest rates used in the present value or future value formula can also be called discount rate. When considering an investment, it is appropriate to use the opportunity cost of putting your money elsewhere as your interest rate.

This is calculated as:

Opportunity Cost = FO−...