Question

A key concept in economics and finance is the time value of money.

Most investment decisions, like buying a house, paying for your education, or starting a business, involve making a payment up front in order to earn a return later. (You pay money out at one or more points in time and later receive your benefits based on the investment’s agreement.)

Additionally, economic factors such as supply and demand can play an important role in your investment process. If there is a huge supply of houses available in a neighborhood you like, housing prices in that neighborhood may go down due to a lack of current demands. Therefore, you as the buyer have more power and may be able to make an offer that is lower than the initial asking price. Alternatively, in a neighborhood that is very much in demand and low in available housing, the housing prices may be higher, and you may need to offer to pay more to compete with other offers for a home there.

Decisions in investments can end in a variety of ways. Applying your problem solving skill and critical thinking strategies can help you successfully analyze opportunities to bring the best benefits for your efforts. Adjusting for the time value of money lets you calculate if the rewards are worth the wait so that you can arrive at an informed decision before you commit your money.

In this week’s discussion:

Identify an investment decision that you or someone else has made. (This should be for goods or services for which one or more payments were made in order to receive increased benefits from those goods or services at a later time.)

• How do you think the concept of supply and demand impacted the investment decision?

• Now that you understand the time value of money, how would you use your problem solving skill (especially critical thinking strategies) to rethink the decision in the future?

Answer 1

As a person, to gain more money from the financial institutions or markets, they need to spend money first. For example, if a person plans to invest money into a bank, he must regularly pay to the bank according to his monthly, quarterly, or yearly choice. To get the return on investment, a person needs to pay regularly. To gain more money, they have to spend money. Here, demand and supply decisions also play an essential role in the investment decisions of the individuals. The banks also have stocks in the financial markets, and if the demand for the stock increases, then prices and return on investment increase, which will be going to provide benefit to the individuals who have invested in those banks. However, similarly, if the stock price increases, then the stock demand will decrease, which will lead to less return on investment to the individuals from the banks. Investors first analyze the market, and after that, they invest in these financial institutions, which will provide them more benefits as money value is an essential factor, and it is the best option to gain more money by analyzing the financial market before investing in them.