What is the meaning of the phrase, time value of money?
What will be an ideal response?
The phrase, time value of money, refers to the concept that a dollar that you have today is worth more than a dollar that you do not receive until one year from today. The value of the dollar you have now is greater because you can invest it and it will grow in value during the year. For example, if you receive $100 now, you might invest it in a mutual fund that has an annual return of 8 percent. One year from now, you will have $108 instead of $100. The opposite also is true. If you must pay an expense, it will be less costly to pay it a year from now.
The time value of money concept is important to a systems analyst who must evaluate a proposed project that involves various costs and benefits that occur at future times. When the analyst performs a present value analysis for the project, he or she is determining the time value of money.
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