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What are some potential problems that could arise if the time value of money is not...

What are some potential problems that could arise if the time value of money is not considered in financial decisions?

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Answer #1

Time value of money (TVM) considers two main thing i.e. interest rate and time period.

In case the time value of money is not considered in financial decisions, which means amount invested/hold today is worth the same in any future date.

Hence by not considering TVM, the potential problems are:

1. you ignore the interest rate which can be earned on today's investment.

2. Also, there is risk of not actually getting the amount in future. However, if you hold the amount today there is no risk involved.

3. There is inflation which is also not considered with time period.

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