ABSTRACT
In an introductory nance course, the rst concept explained is that of Time Value of Money. This is an important and fundamental concept at the core of all monetary transactions with a temporal element, and the core mechanism by which monetary resources move in an economy to be allocated for their most benecial use. The entity extending credit by parting with some idle monetary resources expects to get them back, but expects to be rewarded for the act of parting with its resources. One can consider this reward to be the opportunity cost of the entity extending the credit using its monetary resources. This opportunity cost constitutes the interest rates involved in borrowing and lending in an economy.
