HOW TIME VALUE OF MONEY CAN WORK IN YOUR FAVOUR…

            To understand the concept of time value of money, we first need to understand that time has a cost. If you keep your money idle under your pillow, then you are losing out on the interest or dividends that you could have earned by investing this money. In economics this is referred to as the opportunity cost of money. When you keep money idle, you are losing out on opportunities to earn returns, which is not what a rational person would do. Since time has a cost, you need to be compensated and that comes in the form of interest payable.