Fundamentals of Business Intelligence (FBI) Practice Exam

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Enhance your skills for the Fundamentals of Business Intelligence Exam. Use flashcards and multiple-choice questions, complete with hints and explanations. Prepare efficiently for your exam!

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When comparing two investments with the same nominal amount, which is more valuable?

The one with a longer investment period
The one with higher future value
The one that offers earlier cash flow
The one with no interest

The correct answer is: The one that offers earlier cash flow

The investment that offers earlier cash flow is considered more valuable primarily because of the time value of money. This principle states that a specific amount of money today is worth more than the same amount in the future due to its potential earning capacity. When cash flows are received earlier, they can be reinvested sooner and have the opportunity to earn returns over a longer period of time. Additionally, receiving cash flow early can provide greater flexibility and liquidity, allowing investors to address immediate financial needs, reinvest in other opportunities, or avoid potential losses from market fluctuations. Therefore, cash flow timing is critical, making an investment that delivers cash earlier financially more advantageous compared to others that may offer the same nominal amount but with later payouts or no earning potential. In comparison, while a longer investment period can potentially lead to greater total returns, it does not inherently increase immediate cash value. Similarly, a higher future value depends on various factors and does not account for the advantage of receiving funds sooner. Finally, an investment with no interest fundamentally lacks growth potential, diminishing its overall value.