You have the opportunity to spend $1000 today to purchase an investment that will pay you $360 next year, $360 in two years, and $400 in three years. This is clearly a good deal because the total amount of money you will receive over this three-year period is $1120, which is more than the $1000 you'd have to pay for the investment.

Question

Quizplus · Accepted Answer

The statement does not account for the time value of money, which means that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. Without considering the discount rate or the rate of return required for the investment to be considered a good deal, simply comparing the total future cash flows to the initial investment cost is not sufficient to determine if it's a good deal.

You Have the Opportunity to Spend $1000 Today to Purchase