A sum of money is the total amount of currency (coins, banknotes, digital currency) owned by a person. The term is commonly used in finance, accounting, budgeting, economics, and other contexts that involve monetary exchange or calculation. The word can be applied to any quantity of money, from small amounts to vast fortunes. It can be pronounced as “soum” or as “som.”
Time Value of Money
The concept of the time value of money is an important concept to understand because it shows that money is not worth the same in the future as it is today. This is because of the difference in purchasing power between the two periods. For example, $10,000 received today has more purchasing power than the same amount to be received in two years from now due to inflation.
In finance, the time value of money can be calculated using formulas such as present value and future value. Present value is the value of a sum in today’s dollars while future value is the value of that same sum at a given rate of return over a given number of years. The equation to determine the future value of a sum is: FV = PV(r)/R(n).
Often, it is better to take a lump-sum payment over an annuity because of the potential tax situation and investments that may be made. However, it is not always guaranteed that this will be the case, and the net present value calculation should be performed to make sure the lump-sum is in fact more advantageous than the annuity. סכו״ם כסף