6
THE TIME VALUE OF MONEY

LEARNING OBJECTIVES

• Explain why a dollar today is worth more than a dollar in the future
• Define the terms future value and present value
• Calculate the future value of an amount and annuity
Is it better to receive $10,000 today or at the end of the year? The clear answer is today, for a variety of reasons:
Certainty. A dollar in hand today is certain, whereas a dollar to be received sometime in the future is not.
Inflation. During inflationary periods, a dollar will purchase less in the future than it will today. Thus, because of inflation, the value of the dollar in the future is worth less than it is today.
Opportunity cost. A dollar today can be used or invested elsewhere. The interest forgone by not having ...

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