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> The time value of money is the expected risk of inflation. I don't think that's the only source of time value of money. For example, I'm fairly certain I ca
by aianus 7y ago
> The time value of money is the expected risk of inflation.
I don't think that's the only source of time value of money.
For example, I'm fairly certain I can buy a car for the same price a year from now, but I am willing to pay a huge premium to have the car now so I don't have to ride the bus for two hours a day while I save up the cash to pay for it.
That is a preference for present consumption over future consumption that has nothing to do with inflation.
- lotsofpulp 7y agoConsumption and investment are the same thing in a generalized model when comparing returns and figuring out how much interest to charge to keep up with inflation.
- pas 7y agoBut those two possible uses of money have different profiles. You would have to price in how much it is worth to you to use the car vs the bus, subtract the amortization of the car - and together that's the target rate/yield that you should ask for your money plus risk of default.