Meaning of time value of money an its role in finance?

The time value of money is a fundamental concept in finance that states that a dollar today is worth more than a dollar in the future. This is because money has the potential to earn interest or return over time, so a dollar received today can be invested and grow in value.

The time value of money is important in finance because it helps investors and businesses make decisions about how to allocate their resources. By understanding the time value of money, individuals can compare the value of money received at different points in time, evaluate investment opportunities, and determine the cost of borrowing money.

In essence, the time value of money helps individuals and businesses make informed financial decisions by taking into account the potential for growth or loss of value over time. It is a key concept in financial planning, investment analysis, and risk management.