This posting addresses the time value of money.
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Time value of money
You are to choose between receiving $909 today of $1000 in 12 months' time, assuming interest rate of 10 percent and rounding off the dollar, should you be indifferent between the two options? Why of why not? What does this tell you about the relationship between $1 today and $1 tomorrow?
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Solution Summary
The solution determines which option is the best, and how to decide between receiving $909 today of $1000 in 12 months' time and the relationship between $1 today and $1 tomorrow.
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If we receive $909 today, we get exactly that - $909.
If we choose the $1000 in twelve months time, we see that 1000 / (1+0.10)^1 = 909.09 or 909, ...
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