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Time valueThe time value of money is the simple concept that money in your hand now is worth more than money in a year's time, because you can earn a return on money by lending it out. If, for instance, you are able to earn 10% interest on money, and you are offered £100 now or £109 in a year's time, you should take the £100 now because in a year's time you can have £110 (£100 + £10 interest). If you are offered £111 in a year's time, you should take that option.In valuing companies, stock analysts use the concept of the time value of money to discount back the estimated future earnings of a company to their present value. This is meant to enable comparison of different companies whose future earnings may come at different times. By discounting, the value of those earnings is assessed on their present value, so like can be compared with like.In options, the time value is the amount by which an option's price exceeds its intrinsic value. Suppose the shares of XYZ are trading at 60p. There is an option to buy XYZ's shares before 1st December at 55p, and the price of that option is 8p.The intrinsic value of this option is the difference between the exercise price (55p) and the share price (60p) = 5pThe time value is the difference between the option price (8p) and the intrinsic value (5p) = 3pOptions have a time value to reflect the fact that, in the time until expiry (1st December) the option holder has the opportunity to make profits if the underlying share price moves in his favour. As that expiry date approaches, the time value will decrease until it reaches zero.Time valueApplies to derivative products. Portion of an option price that is in excess of the intrinsic value, due to the amount of volatility in the stock; sometime referred to as premium. Time value is positively related to the length of time remaining until expiration.Time value Similar MatchesMarket ValueMarket ValueThe highest price a willing buyer would pay and a willing seller accept, both being fully informed, and the property exposed for a reasonable period of time. The market value may be different from the price a property can actually be sold for at a given time (market price), Diluted net asset valueDiluted net asset valueA method of calculating the net asset value of a company, for example an investment trust, after taking into consideration any outstanding convertible loan stock, warrants or options which are assumed to be exercised by the holders, so increasing the number of shares among which the assets are divided.Example: an investment trust which has assets of £100 million and 10 million shares in issue has a net asset value of £10 per share. If there are also warrants which, if exercised, would increase the number of shares in issue to 11 million, the net asset value is £9.09. Future valueFuture valueThe amount of cash at a specified date in the future that is equivalent in value to a specified sum today. Value quotaValue quotaA quota specifying value -- price times quantity -- of a good. Value added taxValue added taxA tax that is levied only on the value added of a firm. A VAT is usually subject to border tax adjustment. Further SuggestionsBook value per shareExpected value Net salvage value Present value factor Market value fund value Market value weighted index Value at risk model (VaR) Exercise value Straight value Time value of money Net book value Hidden values price to book value Market value Net present value rule Present value intrinsic value Market Value Approach Slicing up the value chain Normal value Value marginal product Value Line investment survey Conversion parity or value face amount (face value) |
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