Multiple Choice
The concept of the time value of money indicates that:
21
views
10. Time Value of Money
Time Value of Money Equations
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
A dollar today is worth more than a dollar to be received in the future because:
A
The accounting principle of conservatism requires it.
B
Inflation causes the value of money to increase over time.
C
Money can earn interest over time, increasing its future value.
D
Future dollars are always guaranteed to have higher purchasing power.
Verified step by step guidance1
Understand the concept of the time value of money, which states that a dollar today is worth more than a dollar in the future because money can earn interest over time.
Recognize that the principle of conservatism in accounting is unrelated to the time value of money. Conservatism focuses on avoiding overstatement of assets or income.
Acknowledge that inflation typically decreases the purchasing power of money over time, which is the opposite of the claim that inflation increases the value of money.
Identify that the correct reason for the time value of money is that money can be invested to earn interest, thereby increasing its future value.
Conclude that future dollars are not guaranteed to have higher purchasing power due to factors like inflation, which can erode value over time.
5:55mWatch next
Master Time Value of Money and Using Timelines with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Time Value of Money Equations practice set
Problem sets built by lead tutorsExpert video explanations