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Corporate Finance: Why Money Today Beats Money Tomorrow

Time value, bonds, stocks, project choice, risk, the cost of capital, debt, dividends and cash management, explained through the ideas that surprise people most.

Corporate Finance · 50 questions

Try 3 questions

1. Using the rule of 72, roughly how long does money take to double at 8% annual compound interest?

  1. About 12 years
  2. About 6 years
  3. About 9 years
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Answer: About 9 years

Dividing 72 by the interest rate approximates doubling time: 72 divided by 8 is 9 years.

2. You invest 100 at 10% interest compounded annually. What is it worth after two years?

  1. 120
  2. 121
  3. 110
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Answer: 121

The first year gives 110, and the second year's 10% applies to 110, adding 11 for a total of 121.

3. Even with zero inflation, why is money today worth more than the same amount received later?

  1. Future money is legally taxed more
  2. Banks charge fees to store it
  3. It can be invested to earn a return
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Answer: It can be invested to earn a return

Money available now can earn interest or returns in the meantime, so waiting has an opportunity cost regardless of inflation.

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