Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
You are offered a choice between 971 dollar today or 3000 nine years from now
Assuming an annual interest rate of 8%,which is more valuable
Expert Solution
Step 1
Time Value of Money states that with the passing of time value of money decreases. This tendency leads people to have money today then tomorrow.
Such as, what we can buy from $10 today, will not be the same after a year. As the value of the product increases due to inflation and the value of money decreases. Therefore, a person invests money in a savings account to increase the value of money idle today.
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