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Time Matters

Understanding the Time Value of Money

Congratulations!!! You have won a cash prize! You have two payment options: A: Receive $10,000 now or B: Receive $10,000 in three years. Which option would you choose?

What Is the Time Value of Money?

If you're like most people, you would choose to receive the $10,000 now. After all, three years is a long time to wait. Why would any rational person defer payment into the future when he or she could have the same amount of money now? For most of us, taking the money in the present is just plain instinctive. So at the most basic level, the time value of money demonstrates that all things being equal, it seems better to have money now rather than later.

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