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Managerial Finance - Time Value and Money

1. Could you explain why debtors benefit during periods of high inflation. Why would someone in Argentina want to have debt and why does money have a time value?

2. Also, how is the present value of a lump sum related to the present value of a stream of payments? How is this helpful for retirees that are considering taking a lump sum payment in lieu of monthly pension payments?

3. What are the three factors that influence the required rate of return by investors?

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1. Could you explain why debtors benefit during periods of high inflation? Why would someone in Argentina want to have debt and why does money have a time value?

Present worth of rupee received after some time will be less than the rupee received today. This is because of the time value of money. The investor has a time preference of money because he has reinvestment opportunities for funds, which are received early.

The present value of a future cash flow is the nominal amount of money to change hands at some future date, discounted to account for the time value of money. A given amount of money is always more valuable sooner than later since this enables one to take advantage of investment opportunities.

Thus, the time preference for money is an individual's preference for possession of a given amount of money now, rather than the same amount at some future time.

Three reasons may be attributed to the individual's time preference for money: ...

Solution Summary

1. Could you explain why debtors benefit during periods of high inflation. Why would someone in Argentina want to have debt and why does money have a time value?

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