4 - Time Value of Money/Discount Factors Flashcards
1
Q
Explain the concept of Time Value of Money…
A
The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity is called the time value of money. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. Thus, at the most basic level, the time value of money demonstrates that, all things being equal, it is better to have money now rather than later.
2
Q
What is the Discount Factor?
A
The term discount factor is given to the number relating the present value and the future value of an amount on a particular date.
PV = FVt * DF1
