Time Value of Money

Businesses need to understand how their money, investments, or loans are a benefit or detriment to them over time. To gain a better understanding, one should contemplate the time value of money (TVM). According to Benshoof (2005), "The time value of money quantifies the value of money over time. The time value of money depends upon the rate of return or interest rate that can be earned by investing the current money on hand" (p. 74). To recognize how annuities-a set of fixed payments over a specified length of time-affect the time value of money managers need to consider the factors of int…