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1. Inflation makes money worth more over time.
2. There is an opportunity cost to a lender when money is borrowed.
3. It takes time to gather information about financial transactions.
4. Very wealthy people require compensation for holding their money.
Yes, Option2 is the right answer.
yes time have too much effect on value of financial transaction, this term is called time value of money, every financial transaction comprises on two elements 1, Interest, 2, inflation. When we calculated NPV for a project we need to consider time value of money on future payback period.
in my opinion this question is not giving the right options.
related information is that every transaction have time value of money due to cost of capital and assumption of reinvestment.
2. There is an opportunity cost to a lender when money is borrowed
Statement 2 is correct. Though the term "opportunity cost" is best suited here, an explanation is given below.
Having money today means it can simply be invested to earn interest. Theoretically, with a 10% p.a interest rate, a person would be indifferent to receive $100 today or $110 in a year from now ($100 today = $110 in a year from now--VALUE OF FINANCIAL TRANSACTION CHANGED OVER TIME). However, s/he would prefer today's receipt for a number of reasons such as uncertainty associated with a long period of time, to grasp high-earning opportunities and to simply utilize money during the year. For these reasons, s/he may prefer even less than $100 (say $98) today--AGAIN, IN A DIFFERENT MANNER, THE TIME AFFECTS THE VALUE OF TRANSACTION.
Option 2 is the correct one.
Answer 2=====================================
I agree, the correct answer for the question is number2
In a particular business financial statement is prepared using valuation of currency it operates, currency fluctuates almost every day, business need a cutoff in order to calculate cost and revenue same thing in doing transaction to individual. So time is of the essence today's value may differ tomorrow. In my opinion all four choices are essentials that depends on the type of transaction.
There are three reasons :1) Inflation.2) Interest as a opportunity cost.3) Risk.according to my knowledge option 1st and 2nd both are correct.
2. opportunity cost is correct
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