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Time Value of Money

What does that term "time value of money" mean and how does it relate to the calculation of interest, present values of annuities, and payments to amortize a loan?

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TIME VALUE OF MONEY
Time preference for money is an individual's preference for possession of a given amount of money now, rather than the same amount at some future time.
Three reasons may be attributed to the individual's time preference for money:
? risk
? preference for consumption
? investment opportunities

It relates to the calculation of interest as by:
Two most common methods of adjusting cash flows for time value of money:
Compounding?the process of calculating future values of cash flows and
Discounting?the process of calculating present values of cash flows.

The difference between the future value and present value is interest or discount. This is due to the time value of money. Thus time ...

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This solution is comprised of a detailed explanation to answer what does that term "time value of money" mean and how does it relate to the calculation of interest, present values of annuities, and payments to amortize a loan.

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