Question

You’ve learned a lot about Time Value of Money and know that a dollar today isn’t worth the same as a dollar tomorrow. Under what circumstances would it be reasonable for you to sum total cash flows occurring at different points in time without factoring in time value of money?

a. this would be reasonable of interest rates are negative

b. this would be reasonable in an inflationary environment

c. this would be reasonable if interest rates are positive

d. this would be reasonable in a deflationary environment

e. this would be reasonable if interest rates are 0

Answer #1

We will not be factoring in time value of money and we will be adding the cash flow which are occouring at different intervals because when the interest rate in 0 into the economy, It will mean that there is no decrease in the value of the money and there is no change in the interest rate and the inflationary factors so it will be helpful in order to assume that the value of the money would be similar throughout, when the interest rate would be 0 and the discounting factor will also be 0. So, time value of money would be similar at different times.

Hence the correct answer will be option (e) this would be reasonable if interest rates are 0

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