Chapter 9

The Time Value of Money

In evaluating any investment where money is paid today in order to purchase future returns, the impact of time itself on both the Present Value and the Future Value of expected payments must be considered. One dollar received today is worth more from either point of view than one dollar received one year from now. The dollar received today can be put to work right away. It can be reinvested so as to return more than one dollar one year from now. Even in the case of the investor who spends all his income as it is received, the dollar which can be spent today is still potentially worth more than the future dollar. In a sense, the spender places an implicit time value on his money by foregoing the return from potential ...

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