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Questions and Answers
What is the core principle of finance related to the time value of money?
Why is money available at the present time considered to be worth more than the same amount in the future?
In the context of time value of money, which option would a rational person prefer?
What is the concept that determines the future value of money?
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What is the concept that determines the present value of money?
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What is the concept of time value of money?
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Why is immediate receipt of money preferred in the time value of money concept?
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What is the core principle of finance related to the time value of money?
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In the context of time value of money, why is Rs.1,000 today preferred over Rs.1,000 ten years from today?
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What is the potential earning capacity of money in the time value of money concept?
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Study Notes
Time Value of Money
- The core principle of finance related to the time value of money is that a unit of money received today is worth more than the same unit received in the future.
- Money available at the present time is considered to be worth more than the same amount in the future because it can be invested to earn interest or returns.
- A rational person would prefer to receive money today rather than the same amount in the future because of its potential earning capacity.
- The concept that determines the future value of money is the potential earnings or returns it can generate over time.
- The concept that determines the present value of money is the discounting of future cash flows to their equivalent value in the present.
- The concept of time value of money recognizes that a unit of money received today is worth more than the same unit received in the future due to its potential earning capacity.
- Immediate receipt of money is preferred in the time value of money concept because it provides the opportunity to invest and earn returns.
- Rs.1,000 today is preferred over Rs.1,000 ten years from today because it can be invested and earn interest or returns over the ten-year period.
- The potential earning capacity of money is the core principle behind the time value of money concept, which recognizes that money received today can be invested to generate returns.
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Description
Test your knowledge of financial management with this quiz on Time Value of Money. Explore concepts such as compounding, future value, discounting, present value, risk, and return. Assess your understanding of these crucial financial principles.
