Question

How does the time value of money impact investment decisions?

Time value of money impacts investment decisions due to the fact that dollars on hand presently are worth more than payment expected in the future. This is due to inflation in the American economy. On hand dollars can be utilized to invest and earn capital gains.

2. The future value of an investment depends on what key factors?

The future value of an investment depends on the depreciation rate and economical factors.

3. How are stocks and bonds similar, and how are they different?

Stocks are shares of a company in which they gain monetarily. Bonds are debts. They are similar because they are both known as securities.

Answer 1

1. Time value of money impact our Investment decisions because we are investing our money today and we will get return for the Investment in the future and value we are getting today is more worthy than if are getting the same value later on.So we discounts future value of money and calculate it's worth at present so that we can take better Investment decision.

2. Future value of an investment will depends upon following factors :

a. The value of asset and gain based on the interest rate.

b. Required rate of return by the investor.

c. Amount of future payments and the duration till it will be received.

3. Similarities between stocks and bonds :- Both of them are classified as security and both of them can be tradable in the market which is known as capital market.

Differences between stock and bonds :- Stockholders are the owners of the company whereas bond holders are lender to the company. Bonds are held for a definite period of time whereas stocks are held for indefinite period.