Time value of money is �the idea that money available at the present time is worth more than the same amount in the future, due to its potential earning capacity� (Dictionary.com, 2009). Time value of money is used every day by various entities including commercial banks, credit card companies, insurance companies, and others. Businesses and individuals must understand this concept in order to make important financial decisions. They will be able to compare investment options, solve problems, and offer advice to best suit their clients. Commercial banks use the time value of money on a daily basis. The bank will use the present value of an annuity formula to assist in setting up a payment schedule for a mortgage. This will help determine what amount the home owner will pay every month. The same can be used to determine the monthly payment on any loan issued by the bank. Using the information derived from this formula, one can also calculate how much will be paid on interest alone during the life of the loan. Credit card financial service companies provide lines of credit......

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