Question

Time Value of Money has shown you that ____________ and you must invest _______. a. Adollar...

Time Value of Money has shown you that ____________ and you must invest _______.

a. Adollar today is worth more than a dollar tomorrow; tomorrow
b. A dollar today is worth more than a dollar today; today
c. A dollar does not have time value; anytime in the future
d. Time Value of Money is irrelevant; whenever

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Answer #1

Answer b. A dollar today is worth more than a dollar TOMORROW; today

This is the basic idea of time value of money, according to which buying capacity of a dollar is more today than tomorrow, because of inflation.

You can also think this from a mathematical perspective. If you receive $100 today or $100 a year later, which one would you choose? You should choose $100 TODAY. this is because, you can invest that $100 (say at a rate of 4%), so year later, your amount accumulated be $104 (which is more than $100 you would have received if you opted for second choice). This also explains why you should invest today rather than tomorrow.

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