The time value of money: (Select the best answer below.) A. is a measure of the opportunity cost of spending a dollar. B. decreases as the interest rate increases because it costs more to borrow. C. is inversely related to the opportunity cost of money. D. increases as the interest rate decreases because lower interest rates lower the cost of borrowing money.

Question

Gabrielle Orr

Business

25 September, 12:46

The time value of money: (Select the best answer below.) A. is a measure of the opportunity cost of spending a dollar. B. decreases as the interest rate increases because it costs more to borrow. C. is inversely related to the opportunity cost of money. D. increases as the interest rate decreases because lower interest rates lower the cost of borrowing money.

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Answers (1)

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Janelle Todd · Answer 1

The correct answer is letter "A": is a measure of the opportunity cost of spending a dollar.

Explanation:

The Time Value Of Money states a dollar today is always worth more than a dollar tomorrow. This is based on the idea that by having money today we could invest it or save it in the bank so in a determined period that money will provide profits or interest. If the same amount of money is invested tomorrow or next month, the return or interest we would get could be lower.

Opportunity cost is the return obtained after taking one choice compared to the choices forgone. Thus, we could say that the time value of money represents the opportunity cost of having a sum of money today.