BUSN379 Time Value of Money

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BUSN379 Time Value of Money
Why does money have a time value? Can you provide at least one real-life scenario in which you can apply the concept…

 

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BUSN379 Time Value of Money

BUSN379 Time Value of Money

Discussions Week 2 All Students Posts 23 Pages 

Why does money have a time value? Can you provide at least one real-life scenario in which you can apply the concept of time value of money?  The time value of money is the cornerstone of finance. Consider some real-life simple applications such as buying a house, investing in a bond or even your salary. Why would you say that money changes value over time? Why do you believe postponement of consumption  plays a role in the TVM? Any other examples you can provide? Given the concept of postponement of consumption, what are your thoughts regarding the use of debt? Do you believe that using debt can have a positive side? What about a negative side? Should we aim to be debt-free?

A dollar today is not worth as much as a dollar tomorrow. There are a few reasons for this. One reason is that as more money gets printed by the treasury, the less value all the money in existence has. We don’t have the gold standard anymore, but it is easy to think of of inflation in that way. There are 100 lbs of gold that back all of our money, which is $100 making the gold worth $1/lbs. All of a sudden we need $110 but we still only have 100 lbs of gold. We go ahead and print $10 more but now each pound of gold is only worth $.91 ($100/$110). The dollar inflated and now is worth less…