BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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inflation
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reinvestment purpose
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uncertainity
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All the above
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Detailed explanation-1: -The main fundamental reason for Time value of money is reinvestment opportunities. Funds which are received early can be reinvested in order to earn money on them. The basic premise here is that the money which is received today can be deposited in a bank account so as to earn some return in terms of income.
Detailed explanation-2: -Money has time value because: Individuals prefer future consumption to present consumption. Money today is more certain than money tomorrow. Money today is wroth more than money tomorrow in terms of purchasing power.
Detailed explanation-3: -Time value of money works on the principle that money today is worth more than the same amount of money received in the future. There are 5 major components of time value – rates, time periods, present value, future value, and payments.