Asked by Makaylee Wright on May 25, 2024
Verified
If the interest rate is 0%:
A) future amounts have zero present value.
B) future amounts have an infinite present value.
C) the present value of amounts to be received in the future is equal to the sum of those amounts.
D) the future value of an investment is less than the sum of its cash flows.
Interest Rate
The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage.
Present Value
The actual value today of future monetary amounts or cash flow series, determined by a specified rate of return.
Future Amounts
The value of a current asset or amount of money at a specified future date, considering interest or inflation.
- Illustrate the connection between interest rates and the assessment of values in the present and future.
Verified Answer
LG
Lindsey GlassMay 29, 2024
Final Answer :
C
Explanation :
When the interest rate is 0%, the present value of future amounts is equal to the sum of those amounts. This is because there is no discounting of future amounts, so they are worth their full face value in the present. Option A is incorrect because future amounts still have some value in the present, even if the interest rate is 0%. Option B is incorrect because while the present value of future amounts may be higher at a 0% interest rate, it is not infinite. Option D is incorrect because the future value of an investment may be equal to or greater than the sum of its cash flows, depending on the interest rate and other factors.
Learning Objectives
- Illustrate the connection between interest rates and the assessment of values in the present and future.