Usury

Usury as defined today, the practice of making unethical or immoral monetary loans that unfairly enrich
the lender. Originally, usury meant interest of any kind. A loan may be considered usurious because of
excessive or abusive interest rates or other factors. Historically in Christian societies, and still in many
Islamic societies today, charging any interest at all can be considered usury. Someone who practices
usury can be called a usurer, but a more common term in contemporary English is loan shark.

The term may be used in a moral sense—condemning, taking advantage of others' misfortunes—or in a
legal sense where interest rates may be regulated by law. Historically, some cultures (e.g., Christianity in
much of Medieval Europe, and Islam in many parts of the world today) have regarded charging any
interest for loans as sinful.

Usury and the law

When money is lent on a contract to receive not only the principal sum again, but also an increase by
way of compensation for the use, the increase is called interest by those who think it lawful,
and usury by those who do not." (William Blackstone's Commentaries on the Laws of England).

Time Value of Money (TVM)

Time value of money is the concept that the value of a dollar to be received in future is less than the
value of a dollar on hand today. One reason is that money received today can be invested thus
generating more money. Another reason is that when a person opts to receive a sum of money in future
rather than today, he is effectively lending the money and there are risks involved in lending such as
default risk and inflation. Default risk arises when the borrower does not pay the money back to the
lender. Inflation is the rise in general level of prices.

Time value of money principle also applies when comparing the worth of money to be received in future
and the worth of money to be received in further future. In other words, TVM principle says that the
value of given sum of money to be received on a particular date is more than same sum of money to be
received on a later date.

Few of the basic terms used in time value of money calculations are:

Time Value of Money (TVM)

Time value of money is the concept that the value of a dollar to be received in future is less than the
value of a dollar on hand today. One reason is that money received today can be invested thus
generating more money. Another reason is that when a person opts to receive a sum of money in future
rather than today, he is effectively lending the money and there are risks involved in lending such as
default risk and inflation. Default risk arises when the borrower does not pay the money back to the
lender. Inflation is the rise in general level of prices.
Time value of money principle also applies when comparing the worth of money to be received in future
and the worth of money to be received in further future. In other words, TVM principle says that the
value of given sum of money to be received on a particular date is more than same sum of money to be
received on a later date.

Few of the basic terms used in time value of money calculations are:

Present Value

When a future payment or series of payments are discounted at the given rate of interest up to the
present date to reflect the time value of money, the resulting value is called present value.
Read further: Present Value of a Single Sum of Money and Present Value of an Annuity

Future Value

Future value is amount that is obtained by enhancing the value of a present payment or a series of
payments at the given rate of interest to reflect the time value of money.
Read further: Future Value of a Single Sum of Money and Future Value of an Annuity

Interest

Interest is charge against use of money paid by the borrower to the lender in addition to the actual
money lent.
Read further: Simple vs. Compound Interest

Application of Time Value of Money Principle

There are many applications of time value of money principle. For example, we can use it to compare
the worth of cash flows occurring at different times in future, to find the present worth of a series of
payments to be received periodically in future, to find the required amount of current investment that
must be made at a given interest rate to generate a required future cash flow, etc.