OK. Then, as long as the expected profit from building a factory is higher
than zero, I would not lend the money at zero interest rate.
Maybe to make a point more clear. As long as there is some opportunity for
me to invest in a project with positive expected profits (whatever it is -
building a factory, running a restaurant...) I would not lend the money at
zero interest rate. And not just that. If I am really good at what I do, I
would probably need some extra cash so I would be willing to pay someone to
lend me that cash. As long as people are reasonably risk-averse, they will
prefer giving money to me and risking it than giving it to someone else for
free with no risk.
So, if you assume that there is only one way of lending the money risk-free,
while other ways are risky, there will always be someone who is willing to
take that risk and be compensated for it. But then, it looks like a real
world... That is why I assumed we live in a risk-free world.
I guess the short answer to the question Why is a dollar today worth more
than a dollar tomorrow? is Because there are some people who know how to
take $1 today, transform it in $2 tomorrow and pay up to $1 for that.
- Original Message -
From: Fred Foldvary [EMAIL PROTECTED]
To: Marko Paunovic [EMAIL PROTECTED]; [EMAIL PROTECTED]
Sent: Friday, December 05, 2003 21:58 PM
Subject: Re: Why is a dollar today worth more than a dollar tomorrow?
--- Marko Paunovic [EMAIL PROTECTED] wrote:
In a risk-free
world I can't fail.
Risk-free interest is quite different from a risk-free world.
We need to assume the usual risky world, but a loan that is sure to be
repaid and with the interest sure to be paid, which US treasury bonds
currently come close to.