Financecalendar_todayLast updated: Apr 2026
What is Time Value of Money?
/taɪm ˈvæljuː əv ˈmʌni/
The time value of money is the principle that money available now is worth more than the same amount in the future — because money today can be invested to earn returns, and future money is subject to inflation and uncertainty.
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Everyday Example
Would you rather receive £1,000 today or £1,000 in 5 years? Most people instinctively choose today — the time value of money makes that the rational choice.
publicReal-World Application
“Every financial decision in business and investing uses time value of money calculations: mortgage pricing, company valuations, pension projections, and infrastructure investment analysis.”
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Did you know?
The concept dates to ancient Mesopotamia where interest on loans was charged, recognising that lending money had an opportunity cost. Formal mathematical treatment emerged in the Renaissance.
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Key Insight
The time value of money is why lotteries offer lump sums far smaller than the advertised jackpot — a £100m jackpot paid over 30 years is worth far less than £100m today.
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