The current value of the money (English time VALUE OF money; TVM) is based a central component of the financing and investment calculation, as well as mathematics of finance and on the interest charges of the money. If one today the bank an amount of money leaves this amount in one year plus interest is paid back. If one receives the same amount however only in one year, one must do without the interest.

Simply formulated the current value of the money means thus that money, which we possess today are more worth than money, which we will possess in the future: "“A euro today is better than a euro in one year."”

This preference results considerably from the uncertainty over future payments, which result from bankruptcy and inflation: Money, which we possess today are surely, while it is not safe that we the money in the future back to get or how much we can buy thereby.

Future value of the money (final capital)

In order to experience, how much 100 euro are worth today in five years with interest charges of 5% per annum, one uses the following formula:

\ mathrm K_n = \ mathrm K_0 (1+i) ^n=100 (1+0,05) ^5=127,63 \!

Today's value of future incomes (bar value)

In order to experience, how much 100 euro are worth in five years with a interest rate of 5% today, one uses the following formula:

\ mathrm K_0 = \ frac {\ mathrm K_n} {(1+i) ^n} = \ frac {100} {(1+0,05) ^5} =78,35 \!

See also

• Calculation of interest
• Discounting
• Discounted cash-flow

Articles in category "Current value of the money"

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