Final answer:
Kimberly's decision to receive $1,000 immediately for placement in an interest-bearing account was based on the time value of money (C). By doing so, she can take advantage of compound interest over time to maximize the amount of money available for her college expenses.
Step-by-step explanation:
Kiberly decided to get the $1,000 from her grandparents right away and put it into an interest-bearing savings account for two years based on the time value of money. The time value of money is a financial concept that acknowledges that money received today is worth more than the same amount received in the future, due to its potential earning capacity. This core principle supports the idea of receiving money as soon as possible to maximize its compound interest earning potential.
Consider this example: if you save $3,000 at age 25 in an account with a 7% annual rate of return, after 40 years, that amount would grow significantly due to compound interest. Using the formula for compound interest, $3,000*(1+0.07)40, the investment grows to $44,923. This example illustrates how starting to save money early in life and taking advantage of compound interest can significantly increase your savings.
Similarly, in Yelberton's example, if he saves money from age 30 to age 60 at a 6% annual rate, $1 saved turns into $5.74 after 30 years, which is shown by the formula $1*(1+0.06)30. His life-cycle choice of saving during his working life for future consumption after retirement emphasizes the importance of the long-term growth of savings through compound interest.