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This means that a dollar today is worth more than a dollar at some time in the future. Unfortunately, people very often want to buy things at the present time which cost more that what they earn, so they pay with credit cards or take out loans which have to be paid off at some point in the future. In this paper we will discuss the present value of money, the future value of money, compounding effect of money, and annuities. Knowledge of this basic time value of money principles and calculations is crucial for making sound financial decisions in business as well as in our personal lives.
Looking at the borrowing transaction from the borrower's perspective, there are consumers and businesses (not to mention the deficit-ridden government) who really need that dollar today and who are willing to promise to pay back more than that dollar in the future...
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