Identify correct statements from the following regarding Time Value of money:

A. The interest which may be earned/saved on the money held at present underlines the concept of time value of money.

B. The money which is receivable at present has less value than the money receivable in future.

C. The relationship that exists between the value of money receivable at present and the value of money receivable in future is referred as time value of money.

D. Value of money receivable at present - value of money receivable in future - Time value of money

E. Future value of money is the value of money held presently at some given future time at a given rate of interest.

Choose the correct answer from the options given below:

Correct option is B

· A. The concept of time value of money (TVM) is based on the idea that money today is worth more than the same amount in the future due to its potential earning capacity.
· B. This statement is incorrect. Money receivable in the future has less value than money today, not the other way around.
· C. The relationship between the value of money today and in the future is the core concept of TVM, which is true.
· D. This statement is incorrect. The value of money today is greater than the future value, and not an equation as presented.
· E. The future value of money represents its value at a future time, taking into account the interest rate or potential earning power, which is correct.
Information Booster
1. Time value of money (TVM) reflects the opportunity cost of holding money over time.
2. Present value is higher because of the potential for earning interest, while future value is lower for the same sum.
3. Future value accounts for interest or growth of the money over a period of time.
4. A and C directly relate to the concept of time value of money.
5. E explains the future value based on interest accumulation over time.