Asked by Dayna McCormick on May 04, 2024
Verified
As long as the interest rate is greater than zero, the present value of a single sum will always:
A) Increase as the interest rate increases.
B) Be less than the future value.
C) Decrease as the period of time decreases.
D) Equal the future value if the time period is one year.
E) Increase as the number of periods increases.
Interest Rate
The percentage of an amount of money charged for its use over a specific period of time.
Present Value
The immediate fiscal worth of a future amount of money or cash flow streams, discounted with a specific rate of return.
Future Value
The value of an investment or cash flow at a specified future date, based on an assumed rate of growth or return.
- Identify the essentiality of the time value of money in the process of financial decision-making.
- Understand how changes in the discount rate influence the present value of future cash flows.
Verified Answer
HT
Hello ThereMay 10, 2024
Final Answer :
B
Explanation :
The present value of a single sum is always less than its future value when the interest rate is greater than zero, because the future value includes interest earned over time, while the present value represents the current worth of that future sum, discounted by the interest rate over the period until it is received.
Learning Objectives
- Identify the essentiality of the time value of money in the process of financial decision-making.
- Understand how changes in the discount rate influence the present value of future cash flows.