ABSTRACT
One of the most essential and basic concepts in finance is the time value of money. Most investment decisions in business revolve around the value of money, with the underlying assumption that money does not retain its value over time. This chapter helps the readers to understand simple interest and compound interest. The value of money over time with interest can thus be adjusted using the following two techniques: compounding, and discounting. The chapter focuses on compounding only. The compound amount depends on two factors, namely the interest rate and compounding periods. The interest rate is used for translating money from one time period to another. It represents the price of time and the price of risk. The chapter enables readers to calculate the future values of both single and multiple cash flows. This calculation helps in building asset creation as well as in financial planning.
