Explanation of the Effective Annual Rate of Interest EAR

What are the 3 elements of time value of money? They are: Number of time periods involved (months, years) Annual interest rate (or discount rate, depending on the calculation) Present value (what you currently have in your pocket) Payments (If any exist; if not, payments equal zero.) Future value (The dollar amount you will receive in the future. The time value of money (TVM) is an important concept to investors because a dollar on hand today is worth more than a dollar promised in the future. ... At the most basic level, the time value of money demonstrates that, all things being equal, it is better to have money now rather than later.How do you explain time value of money to a child? Give an initial small amount of money to your child (perhaps 50 cents) and offer to add to the amount each day for as many days as your child can continue to save. Gradually increase the daily amount that you provide (for example, 10 cents, then 15, then 20) to mimic compound earnings.