Time Value of Money-Subjective Questions

 

1. Imagine you have the option to receive Rs. 1,000 today or Rs. 1,200 one year from now. How would you decide which option is more beneficial and why?
2. Discuss how the concept of compounding affects the time value of money. Provide an example to illustrate its impact on investment returns.
3. Suppose you are comparing two investment opportunities: one offers a higher annual interest rate but compounds semi-annually, while the other offers a slightly lower rate but compounds quarterly. Which investment would you choose and why?
4. Explain the difference between discounting and compounding when considering the time value of money. How are these concepts used in evaluating cash flows over time?
5. You are offered the choice between receiving Rs. 5,000 ten years from now or Rs. 3,500 today. What factors should you consider in making your decision, and how would you apply the principles of the time value of money?
6. Inflation can significantly impact the purchasing power of money over time. Describe how inflation influences the time value of money and how investors can account for it in their financial decisions.
7. Compare and contrast the concepts of annuities and perpetuities in the context of the time value of money. How does the timing of cash flows affect their valuation?
8. A friend asks for your advice on whether to take out a 5-year car loan with a lower interest rate or a 3-year loan with a higher rate. How would you help them understand the implications of their decision using the time value of money principles?
9. Discuss the relationship between risk and the time value of money. How might the perceived risk of an investment influence the required rate of return and the valuation of future cash flows?
10. You are considering investing in a startup that promises substantial returns in 15 years. How would you use concepts like present value and future value to evaluate the potential profitability of this investment? What assumptions would you need to make, and what limitations might you encounter?