A wealthy relative offers to give you $1,000 today, but doesn't actually give you the money until a year later. The delay in receiving the money causes you to lose the opportunity to earn a year's worth of interest. This example illustrates the rationale for the time value of money.

Question

Quizplus · Accepted Answer

The time value of money refers to the idea that money available at the present time is worth more than the same amount in the future due to its potential to earn interest or increase in value over time. In this example, the delay in receiving the money results in the loss of potential earnings from interest, highlighting the importance of the time value of money.

A Wealthy Relative Offers to Give You $1,000 Today, but Doesn't