You all remember just a few weeks ago when Sony ripped away a bunch of movies and TV shows people “owned”? This ad is on Amazon. You can’t “own” it on Prime. You can just access it until they lose the license. How can they get away with lying like this?
It’s called the Discounted Value Of Money in Finance.
As in, the future money returned by an investment is converted to today’s money by using a risk free investment - say US Treasuries - as baseline to convert that future money to today’s money.
Maybe an example helps: if I have a $1000 investment I can make today that returns $1050 in 2 years time, the way to check if it’s worth it and by how much is by comparing it with how much would $1000 put today in, for example, US Treasuries return in 2 years time and if it’s more than $1050 then that investment isn’t worth it because I could make more from those $1000 in 2 years with no risk.
You could say that the baseline, no-risk, future value of today’s money is how much it will turn into by that future time if I kept it in a risk free investment from today until then, and you can also do the operation in reverse, Discounting the Value Of Money in the Future to a Present Day value.
PS: There is also another concept which applies here which is to do with having your money lock-into something called Opportunity Cost. Simply it’s trying to have a value for the investment opportunities you might miss if you money is already lock-in for a certain time frame in something. Back in the example above, if those $1000 are put in our example investment for 2 years, they can’t be used if a better opportunity appear in the meanwhile.
This actually applies to regular people all the time: for example, if you don’t have time to play a game, why buy it now if you can instead buy it later when you do have time to play it, it might be cheaper and you even have the option to change your mind in the meanwhile and get something else you enjoy more with that game. Mind you, this is maybe an example more suitable for the Patient Gamers forum than for the Piracy one ;)
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A dollar today is worth more than a dollar in 1 year
Yes but the movie will have lost its value over time so you could probably find it for much cheaper.
But you’ve already spent your dollar… That only proves my point. Both the dollar and the media both decrease in value, for separate reasons.
It’s called the Discounted Value Of Money in Finance.
As in, the future money returned by an investment is converted to today’s money by using a risk free investment - say US Treasuries - as baseline to convert that future money to today’s money.
Maybe an example helps: if I have a $1000 investment I can make today that returns $1050 in 2 years time, the way to check if it’s worth it and by how much is by comparing it with how much would $1000 put today in, for example, US Treasuries return in 2 years time and if it’s more than $1050 then that investment isn’t worth it because I could make more from those $1000 in 2 years with no risk.
You could say that the baseline, no-risk, future value of today’s money is how much it will turn into by that future time if I kept it in a risk free investment from today until then, and you can also do the operation in reverse, Discounting the Value Of Money in the Future to a Present Day value.
PS: There is also another concept which applies here which is to do with having your money lock-into something called Opportunity Cost. Simply it’s trying to have a value for the investment opportunities you might miss if you money is already lock-in for a certain time frame in something. Back in the example above, if those $1000 are put in our example investment for 2 years, they can’t be used if a better opportunity appear in the meanwhile.
This actually applies to regular people all the time: for example, if you don’t have time to play a game, why buy it now if you can instead buy it later when you do have time to play it, it might be cheaper and you even have the option to change your mind in the meanwhile and get something else you enjoy more with that game. Mind you, this is maybe an example more suitable for the Patient Gamers forum than for the Piracy one ;)