Time value of money: A case study on its concept and its application in real life problems

Abstract

Purpose of this case study is to understand the concept of time value of money. Way to calculate future value and to use it real life situations. It is the concept that the value of a rupee to be received in coming future is less than the value of rupee today. Time value of Money is a theory advantage of having money today then latter. The time value of money is a concept, which states money available now has worth more than the same amount of money in future due to its earning capacity. I have studied advantages / significance of TVM and various reasons which lead to requirement of TVM. Major reason behind time value of money is inflation, risk and rate of return; which lead to reduction in value of same money in future period. I have tried to find solution to four real life problems through this case study. Problem includes loan repayment problem, investment problem, asset replacement problem, growth rate of profit earned in various years and implicit return on investment.