Which of the following describes the time value of money? A. A dollar received today is worth more than a dollar to be received in the future. B. The fact that invested cash may not earn interest over time is called the time value of money. C. Money loses its purchasing power over time through inflation. D. The time value of money has no effect on the timing of capital investments.

Question

Samuel Benton

Business

31 May, 20:39

Which of the following describes the time value of money? A. A dollar received today is worth more than a dollar to be received in the future. B. The fact that invested cash may not earn interest over time is called the time value of money. C. Money loses its purchasing power over time through inflation. D. The time value of money has no effect on the timing of capital investments.

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Answers (1)

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Abbigail Barr · Answer 1

Answer: a dollar received today is worth more than dollar to be received in the future

Explanation:

The time value of money also referred to as the present discounted value is the concept which explains that an identical amount of money presently available is of more worth now than in the future. This important principle in finance holds that since interest can be gotten from money, an amount of money is of more value as soon as it is received. It is based on the principle that people would like to have money today than later in the future.

For example, if a person has the option of choosing between having $5000 presently or getting the $5000 in three years, most people will choose to collect the $5000 today rather than waiting for three years.