You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year. Which option do you prefer and why if you can earn 5 percent on your money?
Correct answer: D. Either because both options are of equal valueFinance
- A. Rs. 1,000 because it has the higher future value
- B. Rs. 1,000 because you receive it sooner
- C. Rs. 1,050 because it is more money
- D. Either because both options are of equal valueFinance
Explanation
At a 5% return, Rs. 1,000 received today becomes Rs. 1,050 after one year, so both alternatives have equal value. This illustrates the time value of money.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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