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MBA Boot Camp: The Time Value of Money (3.1)
Alex LeClair Alex LeClair

MBA Boot Camp: The Time Value of Money (3.1)

If I offer you $10,000 today or $10,000 exactly one year from now, which do you choose?

You take the money today. Why? Three reasons:

  1. Inflation: Prices go up over time. $10,000 next year buys fewer goods than it does today.

  2. Risk: I might go bankrupt or disappear in the next 12 months. Money in your hand is risk-free.

  3. Opportunity Cost: If you take the $10,000 today, you can invest it at a 5% interest rate. By next year, you will have $10,500. Therefore, $10,000 next year is mathematically worth less than $10,000 today.

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