Definition of Time Value



Time value is a concept that says that the intrinsic value of an asset changes over time. The concept can be understood better with the help of the inflation rate. In any economy, the prices increase over time because of inflation or buying power of money falls over time.

 


You might not be able to buy a soda for $1.00 after 2 years that is worth $1.00 today. Inflation is an economic factor that will reduce the buying capacity of $1.00 to $0.50 in the next two years. This means that the $1.00 in today’s time is equal to $2.00 in two years from now.


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