A wealthy relative offers you $1000 today but doesn't actually get around to giving 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 delayed receipt of money results in the loss of potential interest earnings, highlighting the concept of time value of money, which recognizes that money has a greater value today than in the future due to its earning potential.

A Wealthy Relative Offers You $1000 Today but Doesn't Actually