Time Value of Money

Written By Louis DeLeo

One simple concept underpins all of finance: a dollar today is worth more than a dollar tomorrow. If you remember nothing else, remember that.

Why is that? It is because time has real value and it is the one constant and guaranteed variable in existence. This time-value presents optionality for your dollars, which we can assign value to.

  • If I have a dollar today, I have the option of deciding what to do with it today, or tomorrow

  • If instead I can only receive a dollar tomorrow, I’ve lost the option to decide what to do with it today, and that lost optionality has value

We’ll abbreviate it TVM (Time Value of Money) from here on out

Louis DeLeo
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TVM as the Foundation of Valuation