Suppose that some people invest $1,000 today in a ﬁnancial asset that will make one future payment. The longer they must wait for the future payment, the

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This is because of the concept of time value of money. The longer the time horizon, the higher the expected return to account for the opportunity cost of not having the money available for investment elsewhere. Therefore, investors will expect a higher future payment to compensate for the time value of money.

Suppose That Some People Invest $1,000 Today in a ﬁNancial