Interpretations of interest rates in relation to time value of money

In relation to time value of money, describe three interpretations of interest rates

  • Interest rates are considered as the required rate of return. This is the minimum rate of return an investor must receive in order to accept an investment.
  • Interest rates can be considered as discount rates. These are rates used to discount future amounts to find their value today.
  • Interest rates can be considered as opportunity costs. An opportunity cost is the value that investors must forgo considering a particular course of action.



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