Question

300-400 words, APA Citation/Reference

Evaluating Choices: Time, Risk, and Value.

• What is time value of money?
• Discuss how the expression “a bird in the hand is worth two in the bush” relate to the concept of the time value of money?

Answer 1

Time value of money is a concept which states that money available today is worth more than the money to be received in future. Let us understand this with an example : If you have a choice to receive Rs.5000 today or at some future date then you will prefer to have 5000 now because of interest factor you can put money into bank and earn interest on the same. Time gap between present and future date will help you to make some more money. This gain is wht we call time value of money.

The expression “a bird in the hand is worth two in the bush” means rupee today is worth more than the rupee tomorrow this also happens due to time value of money. This is beacuse of some reasons which can be..

Individuals have preference for current consumption as compared to future consumption

When there is inflation value of money decreases because price of things rise very rapidly greater the inflation greater is time gap.

Risk of uncertainity of future lowers the value of money which effects peoples preference for todays money.