Finance: Understand Time Value of Money TVM
3 months ago
23
Imagine you have $100 today. You have two choices: you can either spend it now or save it. If you choose to save it, you might put it in a bank account where it can earn interest. Let's say the bank offers a 5% interest rate per year. After one year, your $100 would grow to $105.
Now, let's flip the scenario. Suppose someone offers to give you $100, but you have to wait one year to receive it. You might think, "Why wait? If I had the $100 today, I could put it in the bank and earn that 5% interest, making it $105 by next year." This thought shows that money has more value today than the same amount in the future because you can use it to earn more money over time.
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