Time Value of Money

Do you think what you can buy for $10 today can be bought for $10 in 7 years time?? HELL NO, YOU CAN'T. But Why !!!!

• Did the product change? No

• Did the size change? No

• Then what has changed? Time & Money Paid

First you need to know what Value refers to - Value is the worthiness

If you look at the above scenario, the amount of money paid for the same product has increased with time. The only reason this could happen is due to the fall in strength of money (money is not as strong as it used to be) caused by inflation, uncertain future & etc.

When the strength of money is dropped, you will have to pay more money to buy the same product in future.

Remember

Even though the amount of money is equal ($100), the value of each is different simply because with time value of money will go down.

So if by any chance your friend asks whether you want $10 today or $10 after 15 days (future), don't hesitate to take that $10 today.

Take that $10 today and deposit in a bank for 15 days. Then in 15 days you will have $10 + interest for 15 days.... WoW!!! More Money.

Purindu B Jayatilake MSc Eng (Reading), MBA, BSc (Hons) Eng, ACMA (UK), CGMA

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