Asked by Alexandra Rosen on May 01, 2024
Verified
Why does $100 due one year from now have less economic value than $100 has today? What do you need to know before you can determine the difference between the economic values of the two payments?
Economic Value
A measure of the benefit provided by a good or service to an economic agent.
Payments
Transfers of money, or other agreed-upon medium, from one party to another in exchange for goods, services, or to fulfill a legal obligation.
- Estimate the present value of an anticipated financial amount, considering the impact of time on money's value.
- Understand the effect of inflation on the value of money and calculate the equivalent future or past value of an amount.
Verified Answer
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Alexis VillegasMay 01, 2024
Final Answer :
$100 has less economic value 1 year from now because you must forgo 1 year's interest earnings if the $100 is received 1 year from now instead of today.
Learning Objectives
- Estimate the present value of an anticipated financial amount, considering the impact of time on money's value.
- Understand the effect of inflation on the value of money and calculate the equivalent future or past value of an amount.