Money in the present is worth more than money received in the future, according to the time value of money. It is better to receive the $8 today because of unseen variables like inflation and interest rates. The $9 will not buy the same value of goods as it would have been seven years ago, so it is better to take the $8 today and use it. When planning to retire, it is important to consider investing the money to earn more interest. The time value of money encourages one to use the money at present, but when it comes to retiring, it is better to save the money and watch it grow over time.
Explain what is meant by the term “time value of money.” For example, why might it be better to receive $8 today than a promise of $9 seven years from now? How should one consider the time value of money when planning for retirement?
Answer by Academic.tip's expert
An answer to this question is provided by one of our experts who specializes in business & economics. Let us know how much you liked it and give it a rating.
Cite this page
Select a citation style:
References
Academic.Tips. (2023) 'Explain what is meant by the term "time value of money." For example, why might it be better to receive $8 today than a promise of $9 seven years from now? How should one consider the time value of money when planning for retirement'. 20 January.
Reference
Academic.Tips. (2023, January 20). Explain what is meant by the term "time value of money." For example, why might it be better to receive $8 today than a promise of $9 seven years from now? How should one consider the time value of money when planning for retirement? https://academic.tips/question/explain-what-is-meant-by-the-term-time-value-of-money-for-example-why-might-it-be-better-to-receive-8-today-than-a-promise-of-9-seven-years-from-now-how-should-one-consider-the-time-value-of/
References
Academic.Tips. 2023. "Explain what is meant by the term "time value of money." For example, why might it be better to receive $8 today than a promise of $9 seven years from now? How should one consider the time value of money when planning for retirement?" January 20, 2023. https://academic.tips/question/explain-what-is-meant-by-the-term-time-value-of-money-for-example-why-might-it-be-better-to-receive-8-today-than-a-promise-of-9-seven-years-from-now-how-should-one-consider-the-time-value-of/.
1. Academic.Tips. "Explain what is meant by the term "time value of money." For example, why might it be better to receive $8 today than a promise of $9 seven years from now? How should one consider the time value of money when planning for retirement?" January 20, 2023. https://academic.tips/question/explain-what-is-meant-by-the-term-time-value-of-money-for-example-why-might-it-be-better-to-receive-8-today-than-a-promise-of-9-seven-years-from-now-how-should-one-consider-the-time-value-of/.
Bibliography
Academic.Tips. "Explain what is meant by the term "time value of money." For example, why might it be better to receive $8 today than a promise of $9 seven years from now? How should one consider the time value of money when planning for retirement?" January 20, 2023. https://academic.tips/question/explain-what-is-meant-by-the-term-time-value-of-money-for-example-why-might-it-be-better-to-receive-8-today-than-a-promise-of-9-seven-years-from-now-how-should-one-consider-the-time-value-of/.
Work Cited
"Explain what is meant by the term "time value of money." For example, why might it be better to receive $8 today than a promise of $9 seven years from now? How should one consider the time value of money when planning for retirement?" Academic.Tips, 20 Jan. 2023, academic.tips/question/explain-what-is-meant-by-the-term-time-value-of-money-for-example-why-might-it-be-better-to-receive-8-today-than-a-promise-of-9-seven-years-from-now-how-should-one-consider-the-time-value-of/.
Copy