Fundamentals of Business Intelligence (FBI) Practice Exam

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The Fundamentals of Business Intelligence Exam prepares you for BI roles. Tackle topics like data analysis, visualization, and decision-making. Use our flashcards and questions with detailed explanations to pass with confidence!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

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Which scenario is true regarding the time value of money?

$10 earned today is worth less than $10 earned in the future
$10 earned today is worth the same as $10 earned in the future
$10 earned today is worth more than $10 earned in the future
$10 earned today has no value in the future

The correct answer is: $10 earned today is worth more than $10 earned in the future

The time value of money (TVM) is a financial principle that posits that a certain amount of money today holds more value than the same sum in the future due to its potential earning capacity. This concept is based on the principle of opportunity cost and inflation; money has the ability to earn interest or generate returns when invested. Therefore, $10 earned today is worth more than $10 earned in the future because it can be invested to compound over time. This scenario considers several factors, such as the potential for earning interest and the effects of inflation. As time passes, the purchasing power of money may decrease due to inflation, meaning that the future value of money could buy less than its present value. Hence, receiving money now not only avoids the risk of inflation eroding its value but also allows for potential investment opportunities that can increase its worth. This makes the immediate $10 more advantageous compared to receiving it at a later date.