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Time Value of Money Quiz

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Questions and Answers

What is the core principle of finance related to the time value of money?

Money available in the future is worth less than the same amount at present due to its potential earning capacity

Money available in the future is worth more than the same amount at present due to its potential earning capacity

Money available at the present time is worth more than the same amount in the future due to its potential earning capacity (correct)

Money available at the present time is worth less than the same amount in the future due to its potential earning capacity

Why is money available at the present time considered to be worth more than the same amount in the future?

It can be invested to earn interest (correct)

It is immune to inflation

It is easier to spend

It has more purchasing power

In the context of time value of money, which option would a rational person prefer?

Receiving Rs.1,000 today (correct)

Receiving Rs.1,000 in 5 years

Receiving Rs.1,000 in 10 years

Receiving Rs.1,000 in 20 years

What is the concept that determines the future value of money?

Compounding Signup and view all the answers

What is the concept that determines the present value of money?

Discounting Signup and view all the answers

What is the concept of time value of money?

The concept of time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. Signup and view all the answers

Why is immediate receipt of money preferred in the time value of money concept?

Immediate receipt of money is preferred because it provides the opportunity to put the money to work and earn interest due to the potential earning capacity of money. Signup and view all the answers

What is the core principle of finance related to the time value of money?

The core principle of finance related to the time value of money holds that, provided money can earn interest, any amount of money is worth more the sooner it is received. Signup and view all the answers

In the context of time value of money, why is Rs.1,000 today preferred over Rs.1,000 ten years from today?

Rs.1,000 today is preferred because there is a time value to money, and the immediate receipt provides the opportunity to put the money to work and earn interest. Signup and view all the answers

What is the potential earning capacity of money in the time value of money concept?

The potential earning capacity of money is the reason why money available at the present time is worth more than the same amount in the future, as it can earn interest and provide opportunities for investment. Signup and view all the answers

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.