US FIN 325 - Time Value of Money (TVM) Paper

The present value of money is also known as discounting. The discount rate is sometimes called the opportunity cost of money. "Money can be invested to earn interest." Because money is of more value when it is "cash in hand," it has more value since the person holding the cash can invest the cash and in return, earn interest. When payments are not received, cash flow is reduced and therefore interest earned is reduced. The relationship between present value and time and interest rate is exponential. For example, the greater the interest rate, the smaller the present value.…