Time Value of Money

The idea that money received today is worth more than the identical amount of money received in the future. This is because money received today can earn interest over time as well as increasing costs of goods and services over time due to inflation, thus making a dollar more valuable today than in the future. The time value of money is a core principle of finance and the foundation of various return and valuation metrics used in real estate (e.g. PV and IRR).

For example: $100 received today, when grown by 2% per annum, becomes $110.41 in five years. Thus, $100 received in five years is worth less than $100 received today.

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