Imagine the Money Fairy walks up to you today and offers you one of three different piles of money. Of the following, which would you choose?
- $100 right now, with a guaranteed 10 percent return annually
- $109 a year from now
- $120 two years from now
Watching the following Khan Academy video will give you the answer. It will also teach you about a critical concept: the “time value of money.” It centers around the idea of when you get money — and not just the total amount of money you receive.
Understanding the time value of money can help you to compare the value of money you get today with amounts of money promised to you at a future date. The video will also teach you about “present value” and “future value,” and how they impact your savings goals.
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