Suppose you are given two options :
(a) Receive ` 10,000 now or
(b) Receive ` 10,000 after three years
Which of options you prefer to choose ? Explain with the help of the time value of money concept.
Generated by claude-sonnet-4-6 · 2026-06-15 07:07 · grounding rag
Model Answer
I would choose option (a) — Receive ₹10,000 now.
Reason — Time Value of Money:
Money available today is worth more than the same amount received in the future. This is because money received now can be invested immediately to earn returns.
Explanation with example:
If ₹10,000 is received now and invested at 8% p.a. (e.g., Post Office or PPF), it will grow over three years. Receiving it after three years means losing three years of potential returns.
Additional reasons:
- Inflation reduces the purchasing power of money over time; ₹10,000 after 3 years will buy less than ₹10,000 today.
- Early investment allows compounding to increase wealth.
- Future receipts carry uncertainty; present money is certain.
Therefore, receiving money now is always preferable due to its higher present value.
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Explanation
- The core concept examiners want is: money today > same money later, because of earning potential, inflation, and certainty.
- Mention inflation (from the "Why invest?" section) and compounding / invest early (from "When to start investing?") — these are direct textbook points that fetch marks.
- A brief numerical hint (8% p.a. example) strengthens the answer without wasting space.
- Do not write a lengthy essay; 4 crisp points covering the concept + reasons = full marks.