Question

Explain how you will be able to use one of the Time Value of Money concepts in your personal life. i want answer in 5 sentences

Answer 1

Explanation of the above points

(i) Inflation: Under inflationary conditions the value of money expressed in terms of its purchasing
power over goods and services declines.
(ii) Risk: Having one rupee now is certain where as one rupee receivable tomorrow is less certain. That
is a bird-in-the-hand principle is most important in the investment decisions.
(iii) Personal Consumption Preference: Many individuals have a strong preference for immediate
rather than delayed consumption. The promise of a bowl of rice next week counts for little to the
starving man.
(iv) Investment Opportunities: Money like any other commodity has a price. Given the choice of `1000
now or the same account in one year time, it is always preferable to take ` 1000 now, because it
could be invested over the next year @ 12% interest, to produce ` 1,120 at the end of year. If the
risk-free rate of return in 12%, then you would be indifferent in receiving ` 1000 now or `1120 in ones
year’s time. In other words, the present value of `1120 receivable one year hence is `1000.

By this concept we can make our investment properly in our personal life