session 2 time value - Time Preference for Money Time...

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Time Preference for Money 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: risk preference for consumption investment opportunities
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The time preference for money is generally expressed by an interest rate. This rate will be positive even in the absence of any risk. It may be therefore called the risk-free rate. An investor requires compensation for assuming risk, which is called risk premium . The investor’s required rate of return is: Risk-free rate + Risk premium
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Two most common methods of adjusting cash flows for time value of money: Compounding —the process of calculating future values of cash flows and Discounting —the process of calculating present values of cash flows.
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Future Value Compounding is the process of finding the future values of cash flows by applying the
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This note was uploaded on 03/03/2011 for the course MARKETING 101 taught by Professor Singh during the Spring '11 term at Management Development Institute.

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session 2 time value - Time Preference for Money Time...

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