1. Time Value of Money

2. Introduction
Time value of money is an individual’s preference for possession of a given amount of money now rather than the same amount at some Future period.

3. Reasons for this preference
Risk
Preference for Consumption (Urgency)
Investment Opportunities.
Example – A person receives Rs. 100 now or 105 after one year. (R = 5%). He will be indifferent between two options.

4. Rate of Return
Time value of money is generally expressed by Rate of Return.
Knowledge of Required rate of Return helps an individual or a firm in making investment decision.
Example -

5. Simple Interest – The interest that is calculated only on the original amount (Principal)
Compound Interest – The interest calculated on Original amount (Principal) as well as on interest earned.

6. n
For Numericles refer to the class notes or text book.