Time Value of Money

An important concept underlying many financial analysis techniques is that a dollar in hand today is worth more than a dollar to be received in the future. A dollar in hand can be invested to earn a return so that more than one dollar will be available in the future. This concept is known as the time value of money.

Future Value of an Investment

If $5,000 is invested at 10 percent interest for 1 year, at the end of the year the $5,000 will have earned $500 in interest and the total amount available will be $5,500. If the interest earned is allowed to accumulate, it also earns interest ...

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