Question

1. What is the relationship between time, risk and money?

Answer 1

There is a direct relationship between time, risk and Money.

Money has a time value, in the sense that $100 at a certain time does not have the same value at another point in time. If there exists a finite inflation (which is generally always the case), money looses value with time. Hence, $100 some years back, would be much lesser in value in today's time.

Also, there is a risk associated with time. More time duration, higher is the risk. This is evident from the fact that interest rate yield curve is not a straight line, but generally an upward sloping curve. This means that investors demand a higher rate of return for investing in lomger duration assets. This implies that higher the time, higher is the risk associated with money.