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11 October, 06:26

According to the time value of money concept

Multiple Choice:

a. a dollar today is less valuable than a dollar to be collected in the future.

b. a dollar today is more valuable than a dollar to be collected in the future.

c. a dollar today and a dollar to be collected in the future are of equal value.

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Answers (1)
  1. 11 October, 06:59
    0
    The answer is: B) a dollar today is more valuable than a dollar to be collected in the future.

    Explanation:

    As a concept, the time value of money (TVM), states that money available in the present is worth more than the same amount of money available in the future. That is because of money's potential earning capacity. This is one of the core principles of finance, because money owned today has the capacity of earning interests. So that means that the sooner you receive any amount of money, the more it is worth.

    As an example, today you have $1000 and you decide to invest it in bonds. Your investment will yield a 5% interest rate every year. So at the end the year you will have $1,050. So clearly $1000 today is worth more than $1000 in one year because of the capacity of money earning interest (in this example $50).
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Home » Business » According to the time value of money concept Multiple Choice: a. a dollar today is less valuable than a dollar to be collected in the future. b. a dollar today is more valuable than a dollar to be collected in the future. c.
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