Let's see first what the risk-free interest rate really is. It depends on two conditions. One condition is that the borrower will certainly repay the money. The other condition is that the lender will certainly be alive to collect it when the time comes. That is probably the strongest reason why we prefer current consumption. We are just not sure whether we will be alive tomorrow. For the sake of argument, let's assume that people can't die.
As I see it, money still has many uses. One of them is investing in a factory. So, I could build a factory and make some profit. In a risk-free world I can't fail. I might make small profit, but as long as it is positive, I am not willing to lend the money to somebody else for free. ----- Original Message ----- From: "john hull" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Friday, December 05, 2003 16:29 PM Subject: Why is a dollar today worth more than a dollar tomorrow? > For some reason, I can't get it straight in my head > why the risk-free rate of interest would be higher > than zero. > > Does it really come from the fact that some people > wish to consume today but can't, so they purchase > current consumption from suppliers, i.e. lenders, and > the interest rate is just the price in that particular > market? Or is there something different, or deeper, > or whatever going on? > > > > __________________________________ > Do you Yahoo!? > Free Pop-Up Blocker - Get it now > http://companion.yahoo.com/ >
