FOUNDATIONS OF THE TIME VALUE OF MONEY - Accounts and Finance for Managers

There are two, one is the time preference of money and another one is reinvestment opportunity which are identified and inter related with each other.
Early receipt of money paves way for the reinvestment opportunity but the later receipt does not carry the things.
Time value of money normally contains three different components viz:

Real rate of return: It is the return which consider original return of the investment but it never considers the inflation rate.

Expected/Anticipated rate of return: It is the positive rate of return normally expected by every one on the amount of investment from the future.

Risk premiums: This an allowance is normally given to the investors to compensate the uncertainty.


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