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Jemshah
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Asked: 2022-12-29T03:54:50+00:00 In:

State three reasons why money has time value. (3 marks)July 2020

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State three reasons why money has time value. (3 marks)July 2020

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    1. Opportunity cost: The opportunity cost of holding money is the potential return that could have been earned by investing it instead. For example, if you have $100 in cash and decide to hold onto it for a year, you are forgoing the opportunity to invest that money and earn a return on it.
    2. Inflation: Inflation is the general increase in prices over time, which means that the purchasing power of money tends to decrease over time. For example, if the inflation rate is 2% per year, then something that costs $100 today will cost $102 in one year. This means that the value of your money will be worth less in the future, which makes it more valuable to use it now rather than holding onto it.
    3. Risk: The value of an investment can fluctuate over time due to various factors such as changes in market conditions, company performance, and overall economic conditions. Holding money carries less risk than investing it, so it may be more valuable to hold onto cash in times of uncertainty or high risk.
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