Time Value of Money Calculator
Understand money's value over time. Compare present value with future value to make smart investment decisions.
Time Value of Money Calculator
Result
How it works
Formula Used
PV = FV / (1+r)^n or FV = PV × (1+r)^n r = discount/interest rate, n = number of years
Smart Tips
- Higher discount rate = lower present value
- Useful for investment appraisal
- Use cost of capital as discount rate
Best Used For
Project appraisal, loan valuation, investment decisions
FAQs
What's the discount rate and how do I choose it?
Discount rate reflects the time value of money and risk. Use: (1) Your cost of capital for business projects, (2) Investment return expectation for personal investments, (3) Interest rate for loans. Higher risk = higher discount rate.
Should I take ₹1L now or ₹1.2L in 5 years?
Calculate present value of ₹1.2L in 5 years. If discount rate is 8%, PV = ₹818k. So ₹1L today is better. If discount rate is 3%, PV = ₹1.035L. So ₹1.2L in 5 years is better. It depends on your opportunity cost.
How does inflation tie into time value of money?
They're related but different. Time value reflects earning potential (interest/returns). Inflation reflects purchasing power erosion. Real discount rate = Nominal rate - Inflation. For accurate decisions, always consider both.
Why is present value important for loans?
Banks calculate loan value using present value. When you borrow ₹25L at 7% for 20 years, the bank values future EMI payments at ₹25L today. Higher interest rate = lower present value = borrower pays more total interest.
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