Final answer:
It is true that receiving a dollar today is worth more than receiving a dollar in the future, due to the time value of money, opportunity cost, and inflation. Investing the dollar can earn interest, increasing its future value, while future dollars can have less purchasing power.
Step-by-step explanation:
Receiving a dollar today is worth more than receiving a dollar one year from now because a dollar today can be invested to earn interest over time, which is a concept known as the time value of money. This is true because you can take advantage of investment opportunities, such as interest-bearing bonds or savings accounts, to increase the value of that dollar over time.
For instance, if you invest $1,000 in a bond with an 8% annual interest rate, you'll receive $80 per year. But if interest rates rise after your purchase, new bonds might offer 12%, meaning you're missing out on higher payments due to the locked-in lower rate. This highlights the notion of opportunity cost. Moreover, inflation can reduce the purchasing power of money over time, making future dollars worth less. The present discounted value of future payments can be calculated using an interest rate; for example, with a 25% interest rate, a future payment of $125 has a present value of $100.