Time Value of Money - Another Look

Lesson 10 of 11 • 1 upvotes • 9:17mins

Rakesh Sud

Time Value of Money-Another Look. There are three reasons why a rupee tomorrow is worth less than a rupee today. Individuals prefer present consumption to future consumption. To induce people to give up present consumption you have to offer them more in the future. When there is monetary inflation, the value of currency decreases over time. The greater the inflation, the greater the difference in value between a dollar today and a dollar tomorrow.If there is any uncertainty (risk) associated with the cash flow in the future, the less that cash flow will be valued.Other things remaining equal, the value of cash flows in future time periods will decrease as the preference for current consumption increases, expected inflation increases.the uncertainty in the cash flow increases.